U.S. Stock-Index Futures Climb; IBM, Intel, AIG Gain in Europe

By Adria Cimino

Oct. 9 (Bloomberg) -- U.S. stock futures rose, indicating the Standard & Poor's 500 Index will rebound from a six-day drop, as International Business Machines Corp. repeated its profit forecast and investors speculated market declines were overdone.

IBM, the largest computer-services company, climbed 7 percent in Europe after reporting third-quarter earnings that beat analysts' estimates. Intel Corp., the biggest chipmaker, gained 1.4 percent. American International Group Inc. surged 7 percent as the Federal Reserve Bank of New York said the insurer may access $37.8 billion in additional liquidity.

S&P 500 Index futures expiring in December added 17.5, or 1.8 percent, to 998.50 as of 11:51 a.m. in London. Dow Jones Industrial Average futures gained 139, or 1.5 percent, to 9,340 and Nasdaq-100 Index futures increased 32.25, or 2.4 percent, to 1,352.25.

``IBM's earnings and the tone of the company's outlook reassured the market,'' said Clemence Bounaix, a fund manager at KBL Richelieu Gestion, which oversees about $5.5 billion in Paris. ``This is an early indicator of the economy.''

U.S. stocks fell yesterday after Treasury Secretary Henry Paulson said more banks may collapse and unprecedented global interest-rate cuts failed to convince investors the economy will avoid a recession.


Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.

The S&P 500's six-day losing streak was the longest since 2002. Its year-to-date slump of 32.9 percent is the worst since 1974 and the second-biggest drop ever compared with previous returns through Oct. 8, according to Harrison, New York-based research firm Bespoke Investment Group LLC.

Valuations

The 37 percent decline from a record a year ago has left the measure valued at less than 19 times the reported earnings of its companies, the cheapest since February. Europe's Dow Jones Stoxx 600 Index trades at 9.59 times profit, while the MSCI World is valued at 12.07 times the reported earnings of companies in the index, according to Bloomberg data.

IBM jumped 7 percent to $96.90 in Germany. Profit for the year will be at least $8.75 a share, IBM said, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.

Intel added 1.4 percent to $16.47. Microsoft Corp., the biggest software maker, gained 2.3 percent to $23.55. Hewlett- Packard Co., the largest personal-computer maker, increased 1.4 percent to $40.56.

Earnings Estimates

Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to Bloomberg data. IBM's results came after Alcoa Inc., the biggest U.S. aluminum producer, kicked off the earnings season with lower-than-estimated profit, saying net income slid by more than half.

AIG, the insurer taken over by the government, surged 7 percent to $3.41. AIG can swap as much as $37.8 billion of its ``investment-grade, fixed-income securities'' for cash to ``replenish liquidity'' at the insurer, the Fed said.

Wachovia Corp. rose 4.3 percent to $5.28. An agreement suspending federal litigation over the fate of Wachovia was extended by two days after lawyer David Boies said a ``grand solution'' between bidders Citigroup Inc. and Wells Fargo & Co. was being negotiated.

The end of a three-week ban on short selling financial stocks may reduce the market's record price swings as hedge funds increase trading.

Since the Securities and Exchange Commission started the rule Sept. 19, volume on the New York Stock Exchange dropped 35 percent and the Chicago Board Options Exchange Volatility Index surged to 57.53, its third straight record. Options on the VIX, as the volatility gauge is known, imply it will fall 44 percent in the next two weeks after the rule expired last night.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.