U.S. Stocks Advance on Buffett's $5 billion Goldman Investment

By Elizabeth Stanton

Sept. 24 (Bloomberg) -- U.S. stocks rose for the first time in three days as investor Warren Buffett's purchase of a $5 billion stake in Goldman Sachs Group Inc. and endorsement of the Treasury's plan to shore up banks bolstered confidence in the financial system.

Goldman, which this week transformed itself from a securities firm into a bank holding company, added 2.7 percent after saying Buffett's Berkshire Hathaway Inc. will buy preferred shares and the company will sell an additional $5 billion in common stock. Morgan Stanley, which is also converting into a bank, climbed almost 4 percent.

``It's definitely a vote of confidence, one of the smartest long-term investors putting money up,'' said Ralph Shive, chief investment officer at South Bend, Indiana-based 1st Source Corp. Investment Advisors, which manages $3 billion. ``In the context of the financial bonfire, he poured a little water on the fire, which is positive in the short term.''


The Standard & Poor's 500 Index added 2.27 points, or 0.2 percent, to 1,190.49 at 9:33 a.m. in New York. The Dow Jones Industrial Average climbed 16.48 to 10,870.65. The Nasdaq Composite Index advanced 16.71 to 2,170.04. About five stocks gained for every two that fell on the New York Stock Exchange.

Benchmark indexes rebounded from their steepest two-day plunge in six years. U.S. stocks declined yesterday as members of the Senate Banking Committee expressed objections to recommendations by Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson for Congress to quickly pass a $700 billion plan to buy toxic assets from financial firms.

Buffett's Buy

Goldman rose $3.39 to $128.44, extending yesterday's 3.5 percent increase. In addition to Buffett's investment, the most profitable firm on Wall Street plans to raise $5 billion in a stock offering, two people familiar with the situation said. Sumitomo Mitsui Financial Group Inc., Japan's second-biggest bank by market value, may invest in Goldman's offering, two people familiar with the plans said.

Berkshire's preferred shares pay a 10 percent dividend and the company is also getting warrants to buy $5 billion of common stock at $115 apiece, 8 percent less than Goldman's closing share price yesterday.

Buffett endorsed Paulson's plan in an interview this morning on CNBC, saying it was ``absolutely necessary'' to stem an ``economic Pearl Harbor.''

`No Plan B'

``The market could not have taken another week'' like last week, Buffett told the news channel. ``I think it was the last thing Hank Paulson wanted to do, but there's no Plan B for this.''

Morgan Stanley, which this week said it will get an outside investment from Japan's Mitsubishi UFJ Financial Group, added $1.09 to $29.09.

JPMorgan Chase & Co., Wachovia Corp. and Washington Mutual Inc. all climbed at least 2 percent.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.