BLBG: U.S. Stocks Gain, Extending Global Rally, on ‘Bad Bank’ Plan
U.S. stocks rose, extending a global rally, as President Barack Obama prepared to set up a so-called bad bank to absorb toxic investments and Yahoo! Inc. and Germany’s SAP AG reported better-than-estimated earnings.
Citigroup Inc. and Bank of America Corp. surged more than 19 percent after a White House official said Obama’s team may announce the outlines of its plan next week. Deutsche Bank AG and Barclays Plc added at least 17 percent in Europe, while Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, advanced 1.2 percent. Yahoo and SAP, the largest maker of business-management software, climbed at least 5.8 percent. The dollar and yen weakened as investor appetite for risk grew.
“It’s all based on the fact that we are going to have a bad bank in the U.S.,” said Steen Jakobsen, who manages $140 million as chief investment officer at Saxo Bank A/S. “It’s built on the hope that you can buy some time. It’s better than nothing,” he said in a Bloomberg Television interview in London.
The Standard & Poor’s 500 Index added 2 percent to 862.38 at 9:36 a.m. in New York. The Dow Jones Industrial Average climbed 112.23 points, or 1.4 percent, to 8,286.96. Europe’s benchmark, the Dow Jones Stoxx 600 Index, jumped 2.6 percent, while the MSCI Asia Pacific Index rose 0.9 percent.
The S&P 500 yesterday capped its first three-day advance of the year. A four-day streak of gains would be the gauge’s longest since November. The index, which has dropped for three straight weeks, is still 15 percent above an 11-year low reached on Nov. 20 amid optimism that Obama’s stimulus package will revive the economy.
Stimulus, ‘Bad Bank‘
The yen and the dollar weakened on speculation U.S. efforts to support the banking system will encourage investors to buy higher-yielding currencies. Treasuries fell, led by 10-year notes, amid concern Obama’s plans to revive the economy will spark demand for higher-yielding corporate debt.
The U.S. House is set to approve Obama’s proposed $816 billion economic stimulus package today. The plan is aimed at wresting the economy out of recession through a combination of tax cuts and $604 billion in spending.
Citigroup added 70 cents to $4.25 while Bank of America, the largest U.S. lender by assets, jumped $1.10 to $7.60. JPMorgan Chase & Co. climbed 7.5 percent to $26.93.
The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks’ toxic debt, in the hope of stemming a crisis that has stripped more than 1.3 million Americans of their homes. The S&P 500 fell the most since the Great Depression last year after the collapse of Lehman Brothers Holdings Inc. froze credit markets and more than $1 trillion in losses at financial firms eroded profits.
Earnings Watch
Wells Fargo & Co., the second-biggest U.S. home lender, jumped 19 percent to $19.27. The bank maintained its dividend and said it doesn’t need more federal aid as it reported its first quarterly loss since 2001 following its acquisition of Wachovia Corp.
Yahoo, owner of the second-most-popular U.S. search engine, added 75 cents, or 6.6 percent, to $12.09. Excluding items such as stock-based compensation, earnings were about 18 cents a share, buoyed by job cuts and rising domestic sales. That beat the 17 cents estimated by analysts in a Bloomberg survey.
Carol Bartz, in her first earnings conference call as chief executive officer, said she would consider offers to buy the company’s assets, while adding that she didn’t come to Yahoo with the intention of selling it.
Profit Slump
Profits decreased 44 percent for the 144 companies in the S&P 500 that have released fourth-quarter results since Jan. 12. Analysts now forecast a 32 percent drop in earnings for the fourth quarter after saying in March 2008 that net income would rise as much as 55 percent, according to Bloomberg data.
The U.S. Federal Reserve will refrain from raising interest rates from record lows when it finishes a meeting today, futures contracts on the Chicago Board of Trade indicate.
Fed Chairman Ben S. Bernanke trimmed the target for overnight lending between banks to a range of zero to 0.25 percent at the previous policy meeting on Dec. 16 to help unclog credit markets.
Deutsche Bank, Germany’s largest, surged 18 percent to 21.38 euros. Barclays, the U.K. lender that turned down government funding last year, rallied 21 percent to 109 pence.
In Asia, Mitsubishi UFJ increased 1.2 percent to 503 yen. KB Financial Group Inc., which controls South Korea’s biggest bank, soared 11 percent to 35,400 won.
