U.S. Stocks Gain on Speculation Bank Bailout Will Be Approved

By Elizabeth Stanton

Sept. 25 (Bloomberg) -- U.S. stocks advanced, led by banks, as speculation Congress will reach an agreement on a $700 billion bailout of financial institutions overshadowed General Electric Co.'s reduced profit forecast.

Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. climbed as much as 4.4 percent on expectations policy makers will approve Treasury Secretary Henry Paulson's plan, avoiding the ``long and painful recession'' President George W. Bush warned would occur otherwise. Nike Inc. gained 6.3 percent as the largest athletic-shoe maker said earnings fell less than analysts estimated. GE retreated 1.9 percent after blaming ``unprecedented weakness'' in financial markets for its cut.

The Standard & Poor's 500 Index increased 9.83 points, or 0.8 percent, to 1,195.70 at 9:34 a.m. in New York. The Dow Jones Industrial Average climbed 87.54, or 0.8 percent, to 10,912.71. Two stocks rose for each that fell on the New York Stock Exchange.

``Optimism lies in the hope that we're nearing the end of the credit crisis and that Paulson's plan will help settle things down and businesses can get back to functioning as normal,'' said James Gaul, a Boston-based money manager at Boston Advisors LLC, which oversees $1.8 billion.

The S&P 500 is down 19 percent this year on concern more than $500 billion in credit losses and writedowns at financial firms globally and a slowing economy is curbing profits. Speculation that lawmakers will derail the White House's plan to rescue banks pushed stocks lower yesterday.

`Basically Done'

Stocks rallied after representative Paul Kanjorski, a Pennsylvania Democrat, told CNBC that ``the package is basically done.'' Following Bush's speech last night, House Financial Services Committee Chairman Barney Frank told reporters that House and Senate Democrats had reached a deal on legislation.

The benchmark index for U.S. equities has erased 70 percent of the gains it posted on Sept. 18 and 19 after the bailout plan was proposed. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson yesterday appeared before the congressional Joint Economic Committee and the House Financial Services Committee.

``The market knows the deal's going to be done,'' said Peter Kenny, managing director in institutional sales at Knight Equity Markets LP in Jersey City, New Jersey. ``If the market suspected it was not going to pass, we'd be trading much lower.''

Rate-Cut Odds

Bush's forecast for the economy and a warning yesterday from Bernanke that the U.S. faces ``grave threats'' increased chances of a Fed interest rate cut to 92 percent by the next meeting Oct. 29. Financial futures show traders expect the central bank to lower its benchmark rate to 1.75 percent in October and see 31 percent odds they will shift to 1.50 percent before the year is over.

Bank of America Corp. rose 3 percent to $34.07. JPMorgan Chase added 4.4 percent to $42.30. Citigroup advanced 1.5 percent to $19.24.

Nike climbed $3.72 to $62.99. It said orders in China surged and reported first-quarter earnings that beat analysts' estimates after the Beijing Olympics boosted sales.

GE fell 47 cents to $24.12, declining for the fourth consecutive day. The company cut its third-quarter profit forecast to between 43 cents and 48 cents a share, less than a previous forecast of 50 cents to 54 cents. GE also suspended its stock buyback.

``We thought GE would be a defensive holding,'' said Ralph Shive, chief investment officer at South Bend, Indiana-based 1st Source Corp. Investment Advisors, which manages $3 billion including GE shares. ``It's a disappointment.''

Orders Trail Estimates

Stocks briefly pared their gain after the government said orders for U.S. durable goods fell more than twice as much as forecast in August, a sign that slower sales and tighter credit conditions prompted companies to cut spending. The 4.5 percent drop in bookings of goods meant to last several years followed a revised 0.8 percent gain in July that was smaller than previously reported. Excluding transportation equipment, orders decreased 3 percent, the biggest drop since January 2007.

A report at 10 a.m. in Washington is forecast to show fewer Americans purchased new homes in August than in July, signaling the housing slump will keep weighing on the economy. Sales of new homes probably dropped 1 percent last month to a 510,000 annual pace, according to the median estimate of economists surveyed by Bloomberg News.

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