U.S. Stocks Climb as Oil Falls; Delta Air Lines, Lehman Advance

By Lynn Thomasson

Sept. 2 (Bloomberg) -- U.S. stocks rallied after Hurricane Gustav spared energy facilities in the Gulf of Mexico, sending oil to a five-month low and improving the earnings outlook for airlines and retailers.

Delta Air Lines Inc. and United Airlines' parent UAL Corp. rose more than 18 percent and Macy's Inc. climbed 5 percent after crude retreated below $110 a barrel. Lehman Brothers Holdings Inc. gained 7.3 percent as Korea Development Bank said it will buy a stake in the fourth-largest U.S. securities firm, while Bank of America Corp. advanced 5.9 percent after Goldman Sachs Group Inc. said the company won't have to issue common shares to raise capital.

The drop in oil ``trickles down to the consumer and it also lowers expectations with respect to inflation,'' Scott Richter, who helps oversee about $21 billion at Fifth Third Asset Management in Cleveland, said in a Bloomberg Television interview. ``That's good for the market.''

The Standard & Poor's 500 Index gained 14.92, or 1.2 percent, to 1,297.75 at 9:34 a.m. in New York. The Dow Jones Industrial Average added 194.1, or 1.7 percent, to 11,737.65. The Nasdaq Composite Index rose 33.87, or 1.4 percent, to 2,401.39. Almost four stocks climbed for each that fell on the New York Stock Exchange.

The S&P 500 added to its biggest monthly advance since April and extended its gain in the third quarter to 1.4 percent as eight of ten of its major industry groups increased. The U.S. market was closed yesterday for the Labor Day holiday.

Oil Slides

Crude oil for October delivery fell as low as $105.46 a barrel today, down 8.7 percent from the close of Aug. 29 on the New York Mercantile Exchange, after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms. The fuel reached the lowest since April 4.

Oil will likely drop further in the next three to six months, said investor Marc Faber in a Bloomberg Television interview today. He favors shares of AMR Corp., American Airlines' parent company, even if the air carrier is ``disastrous.''

Lehman added 7.3 percent to $17.27. Korea Development Bank is in talks to buy a stake in the securities firm, Chief Executive Officer Min Euoo Sung said, as Asian investors shore up Wall Street firms beaten down by the global credit squeeze.

``I cannot comment further,'' said Min, who headed Lehman's Seoul branch before joining the Korean bank in June. Matthew Russell, a Hong Kong-based spokesman for Lehman, declined to comment.

Bank of America

Bank of America Corp. climbed $1.85 to $32.99. Goldman Sachs Group Inc. analysts recommended buying shares of the second- largest U.S. bank because of its ``long-term earnings power.'' The analysts also said the company will likely avoid selling more shares to raise capital.

Citigroup, which reported the biggest writedowns and credit- market losses among the world's largest banks, gained 71 cents to $19.70.

The most bullish profit forecasts for next quarter are for financial companies, estimates compiled by Bloomberg show. In the fourth quarter, brokerages and insurers will boost earnings almost fivefold from a year ago, analysts say.

Wall Street forecasters, who were too optimistic about earnings for the past four quarters, predict income at America's biggest companies will grow by a record 62 percent in the final three months of 2008, according to data compiled by S&P.

Shares in the S&P 500 have climbed to an average 25.8 times reported profits as of the start of trading today, the highest valuation in five years. The last time that happened, the index fell 38 percent.

Economic Data

A report today may show U.S. manufacturing stagnated for a second month as rising exports countered weakening domestic demand. The Institute for Supply Management's factory index was probably unchanged at 50 for a second month in August, according the median estimate of a Bloomberg survey. The report is due at 10 a.m. New York time.

Commerce Department figures at the same time may show spending on construction projects dropped 0.4 percent in July for a second month, according to Bloomberg estimates.

The S&P 500 has rebounded 6.4 percent from its 2008 low on July 15. The index is still down 12 percent this year as subprime-related losses at global banks climbed above $500 billion and the U.S. economy teetered on the brink of a recession.

To contact the reporters on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net.