Most U.S. Stocks Gain on Durable Goods, Rally in Energy Shares

By Eric Martin

Aug. 27 (Bloomberg) -- Most U.S. stocks rose for a second day after orders for durable goods unexpectedly advanced in July and a jump in oil prices boosted energy shares.

Alcoa Inc. and AT&T Inc. each climbed as much as 1 percent after the Commerce Department report bolstered expectations that the economy is recovering. Fannie Mae and Freddie Mac rallied more than 9 percent on a Citigroup analyst's report that new investments will boost profits. The advance in crude pushed Chevron Corp. and Exxon Mobil Corp. up, while sending Home Depot Inc. and General Motors Corp. down by about 1 percent each.

About 11 stocks advanced for every 10 that fell on the New York Stock Exchange. The Standard & Poor's 500 Index slipped 0.71 point, or 0.1 percent, to 1,270.8 at 9:59 a.m. in New York. The Dow Jones Industrial Average lost 25.16 to 11,387.71. The Nasdaq Composite Index slipped 1.41 to 2,360.56.

``As long as businesses are optimistic, we have a good chance of pulling out of this weak period in the economy in fairly short order,'' said Peter Jankovskis, who helps manage $1.5 billion at OakBrook Investments in Lisle, Illinois. The durable goods data ``was a very strong report, and the market has acted appropriately.''

The 1.3 percent gain in durable goods orders defied economist forecasts for an unchanged reading in July. Stock futures fell before the Commerce Department report as a third day of gains in oil spurred concern that a rebound in crude from a more than 20 percent tumble will threaten profits at consumer, transportation and technology companies.

Fannie, Freddie

Fannie Mae added 55 cents to $6.17, while Freddie Mac gained 56 cents to $4.54. The mortgage-finance companies may get the biggest profits on new investments since at least 1998. The current-coupon mortgage bonds Fannie and Freddie buy yield about 40 basis points, or 0.40 percentage point, more than what they pay to borrow by selling benchmark bonds, Citigroup said. The difference exceeded 20 basis points only twice in the 10 years through 2007 -- in 1998 and 2003.

Merrill Lynch & Co. gained 40 cents to $24.50. Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, said it has ``great confidence'' in Merrill's Chief Executive Officer John Thain and plans to raise its stake.

Temasek, the U.S. bank's biggest shareholder, received U.S. antitrust approval yesterday to raise its stake to between 13 percent and 14 percent.

Goldman Sachs Group Inc. dropped $1.91, or 1.2 percent, to $154. Morgan Stanley analyst Patrick Pinschmidt cut his estimate for Goldman's third-quarter earnings to $1.65 a share from his earlier $3 estimate. The New York-based bank may mark down so- called principal investments by $525 million, he said in a note to clients.

Oil Gains

Exxon rose 49 cents to $80.44, while Chevron climbed 74 cents to $86.53. Crude oil rose for a third day on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production.

Amylin Pharmaceuticals Inc. lost $3.59, or 13 percent, to $23.65 after four more patients taking the diabetes drug Byetta died from pancreatitis. Byetta, available in the U.S. since June 2005, is Amylin's leading product, with global sales that rose 25 percent in the second quarter to $194.7 million from a year earlier.

No definite relationship between Byetta and the additional deaths has been proved, and the Food and Drug Administration was aware of them when it made its announcement last week, Amylin Chief Executive Officer Dan Bradbury said by telephone yesterday.

Motorola Inc., the largest U.S. mobile-phone maker, slipped 15 cents to $9.41 after Gartner Inc. said the company's share of the market declined to 10 percent from 14.5 percent in the second quarter.

August Returns

The S&P 500 is little changed in August after falling in June and July. The benchmark index for U.S. equities has posted only two monthly gains since reaching a record in October and is down more than 13 percent this year.

The S&P 500 Consumer Discretionary Index, which includes retailers and hotel and restaurant chains, has rallied 5.3 percent this month for the best gain among 10 industries as of the close of trading yesterday.

The group was helped by a 21 percent retreat in oil prices from a July record. Limited Brands Inc., owner of the Victoria's Secret lingerie chain, has led the advance with a 23 percent gain after posting profit that topped analysts' estimates and predicting full-year earnings will exceed its earlier projections.

An index of technology shares in the S&P 500 has had the second-best return in August with a 2.9 percent gain, led by a 41 percent jump in Advanced Micro Devices Inc.

Banks' August Slump

Banks, brokerages and insurers have fared the worst in August, with the S&P 500 Financials Index down 6.6 on concern that a government bailout of Fannie Mae and Freddie Mac will wipe out shareholders. The two largest U.S. mortgage-finance companies fell more than 50 percent each in August through yesterday.

The U.S. Federal Deposit Insurance Corp., which provides cover for the nation's bank deposits, may have to tap Treasury Department funds to carry it through an anticipated wave of bank failures, the Wall Street Journal reported, citing chairman Sheila Bair. Bair told the Journal the borrowing wouldn't be to cover any FDIC losses, instead it would provide short-term liquidity to cover bank failures.

The FDIC said yesterday its ``problem list'' of banks increased 30 percent in the second quarter to 117 banks, the highest total in five years, as more commercial real-estate loans were overdue.

U.S. stocks advanced yesterday, rebounding from the biggest drop in a month, as higher oil prices boosted energy shares and analysts said Fannie Mae and Freddie Mac have enough capital to last the year.

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To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.