U.S. Stock-Index Futures Rise on Bailout, Rate-Cut Speculation

By Eric Martin

Oct. 3 (Bloomberg) -- U.S. stock futures rose after a bigger-than-forecast decrease in jobs bolstered expectations Congress will pass a bank-bailout plan and the Federal Reserve will cut interest rates to boost the economy.

General Motors Corp., United Technologies Corp. and Alcoa Inc. led gains in Dow Jones Industrial Average stocks as futures traders bet the Fed will cut its benchmark rate by as much as 0.75 percent at its October meeting. Wachovia Corp. rallied 74 percent after Wells Fargo & Co., the biggest West Coast bank, agreed to buy the lender for about $15.1 billion.

``This economic report is putting a gun to Congress's head that they've got to do something,'' said Peter Jankovskis, the Lisle, Illinois-based co-chief investment officer at Oakbrook Investments LLC, which manages $1.4 billion. ``There's no wiggle room for Congress, and that makes it very likely the bailout package will be passed soon.''

Futures on the Standard & Poor's 500 Index expiring in December gained 8.9, or 0.8 percent, to 1,133.3 at 9:15 a.m. in New York. Dow Jones Industrial Average futures added 37, or 0.4 percent, to 10,594. Nasdaq-100 Index futures rose 11.5, or 0.8 percent, to 1,522.

The S&P 500 has dropped 8.1 percent over the past four days, poised for the steepest weekly loss since after the Sept. 11, 2001, terrorist attacks. The benchmark index for U.S. stocks tumbled 4 percent yesterday as reports on jobless claims and factory orders reignited concern the economy is sinking into a recession.

GM climbed 15 cents to $9.18. United Technologies, maker of Otis elevators, added $1.02 to $56. Alcoa, the largest U.S. aluminum maker, climbed 44 cents to $19.72.

Wachovia Rallies

Wachovia rallied $2.91 to $6.82 before the official open on the New York Stock Exchange. The deal values the Charlotte-based bank at $7 a share, the companies said in a joint statement today.

Citigroup Inc., which had agreed four days ago to buy Wachovia's banking operations, declined $3.35, or 15 percent, to $19.15.

Goldman Sachs Group Inc., which converted into a bank holding company after short-term lending markets froze, increased 1.1 percent to $133.

Equities retreated from Sao Paulo to London to Tokyo this week, sending the MSCI All-Country World Index to an 8.9 percent decline, as an increase in bank failures exacerbated the credit freeze that pushed up borrowing costs for companies and consumers around the globe.

S&P 500 Valuation

The S&P 500, down 24 percent this year, still trades for 21.2 times profit from the past 12 months. Only four of 48 developed and emerging nations tracked by MSCI Inc. -- Switzerland, Jordan, Colombia and Morocco -- have a higher price-to-earnings ratio, according to data compiled by Bloomberg yesterday.

Europe's Dow Jones Stoxx 600 Index trades at 10.7 times earnings, near the lowest since at least 2002.

The House is scheduled to vote again on the rescue plan at about 12:30 p.m. Washington time. The legislation allows the government to buy troubled assets from financial institutions rocked by record home foreclosures. It contains provisions favored by House Republicans, including $149 billion in tax breaks, a higher limit on federal bank-deposit insurance and changes in securities law.

It also reiterates securities regulators' authority to suspend asset-valuing rules that corporate executives blame for fueling the crisis. The Senate on Oct. 1 approved the $700 billion bill, in a 74-25 vote.

At least eight lawmakers in the House of Representatives who voted against the rescue plan earlier this week said they now support the measure.

Fed Rate Cut

Futures on the Chicago Board of Trade show a 98 percent chance the Fed will reduce its target rate for overnight bank loans by a half-percentage point to 1.5 percent at its Oct. 29 meeting and 2 percent odds of a 0.75 percentage-point cut.

``We wouldn't be surprised to see the Fed cut rates 50 points even before the next scheduled meeting,'' James Shugg, a senior economist at Westpac Banking Corp. in London, said in an interview on Bloomberg Television. ``It actually helps boost, to some extent, bank profitability. An interest-rate cut is an important part of the solution to the current serious problems confronting the U.S. economy.''

CSX Corp. jumped 79 cents to $48. JPMorgan Chase & Co. upgraded shares of the Jacksonville, Florida-based railroad to ``overweight'' from ``neutral,'' saying an 11 percent tumble yesterday left the stock at a ``compelling valuation'' given its ``strong visibility'' for earnings growth next year.

Burlington Northern Santa Fe Corp., also raised to ``overweight'' from ``neutral'' by JPMorgan, climbed 95 cents to $83.95. The Fort Worth, Texas-based railroad whose largest investor is billionaire Warren Buffett dropped 7.3 percent yesterday on concern falling commodities and factory orders may foreshadow a decline in freight volume.

The ISM's index of non-manufacturing businesses, which make up almost 90 percent of the economy, probably slipped to 50 from 50.6, according to the survey median. A reading of 50 is the dividing line between growth and contraction.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.