Morgan Stanley Strategist Turns Bullish, Sees S&P 500 at 1,300

By Nick Baker and Alexis Xydias

Sept. 19 (Bloomberg) -- Morgan Stanley strategist Abhijit Chakrabortti turned positive on U.S. stocks after policy makers announced plans to shore up financial markets and the ``last strands of complacency'' among investors disappeared.

The Standard & Poor's 500 Index will rise to at least 1,300 by the end of the year, a gain of 7.7 percent from yesterday's close, the New York-based investment strategist wrote in a report today. The benchmark index for U.S. stocks sank to a three-year closing low of 1,156.39 on Sept. 17 before surging the most in six years yesterday.

``Global policy makers have woken up to the severity of the financial crisis and are expected to continue to respond aggressively,'' Chakrabortti wrote. ``The last strands of complacency have disappeared with severe declines in emerging and non-U.S. equities.''

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed removing troubled assets from the balance sheets of financial companies, while British and American regulators cracked down on short sellers. That drove Europe's Dow Jones Stoxx 600 Index to a 6.4 percent rally, its biggest gain since data for the index began in 1987. The U.K.'s FTSE 100 Index posted a record advance, and U.S. stock-index futures climbed.

Chakrabortti boosted U.S. financial stocks to ``overweight,'' meaning he recommends investors put more of their assets into the industry than their representation in benchmark indexes. He previously had a ``neutral'' rating.

``This is not a call that the bear market is over, or even that we have seen the lows in the current cycle, but for the rest of the year we believe the improvement in risk tolerance will outweigh'' lower earnings, the strategist said.

To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.