U.S. Stocks Advance After IBM Profit Tops Estimates; Banks Gain

By Lynn Thomasson

Oct. 9 (Bloomberg) -- U.S. stocks rose and the Standard & Poor's 500 Index rebounded from its worst six-day plunge since 1987 as better-than-estimated profit at International Business Machines Corp. spurred speculation earnings will weather the financial crisis.

IBM, the largest computer-services company, climbed as much as 5.3 percent. Intel Corp., the biggest chipmaker, gained 2.5 percent. Bank of America Corp., JPMorgan Chase & Co. and Alcoa Inc. climbed more than 4 percent. The MSCI World Index rose for the first time since Oct. 1 after falling to its cheapest valuation in more than a decade.

The S&P 500 added 12.63, or 1.3 percent, to 997.57 at 9:41 a.m. in New York. The Dow Jones Industrial Average gained 141.3, or 1.5 percent, to 9,399.4 and the Nasdaq Composite Index increased 28.2, or 1.6 percent, to 1,768.53. Five stocks rose for every two that fell on the New York Stock Exchange.

``There are problems out there, I know that, but stocks have completely overshot on the downside and are now discounting some bad economic conditions,'' Kevin Rendino, who manages $10 billion at BlackRock Inc. in Plainsboro, New Jersey, told Bloomberg Television. ``There are a number of companies that offer unbelievable risk-reward potential.''

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.

Still, the cost of borrowing in dollars for three months in London soared to the highest level this year, according to the British Bankers' Association, indicating government actions to ease market turmoil haven't revived lending among banks for any longer than a day.

Six-Day Losing Streak

The S&P 500's losing streak this month was the longest since 2002 and the steepest plunge over six days since 1987. Its year-to-date slump of 32.9 percent through yesterday 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.

The 37 percent decline from its record close of 1,565.15 exactly a year ago left the measure valued at less than 19 times the reported earnings of its companies at the start of trading, 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 Rallies

IBM jumped $3.56 to $94.11. 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.

Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey. 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.

To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.