U.S. Stocks Surge on Speculation Bank-Rescue Plan Will Pass

By Eric Martin

Sept. 30 (Bloomberg) -- U.S. stocks jumped the most in six years as growing expectations that lawmakers will salvage a $700 billion bank-rescue package helped the Standard & Poor's 500 Index recover more than half of yesterday's 8.8 percent plunge.

JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. climbed more than 13 percent as Senate leaders vowed to resume work on the bailout plan this week after its rejection spurred the market's steepest decline in two decades. Hess Corp. and Schlumberger Ltd. added more than 5.8 percent as optimism about the proposal helped oil rebound from a $10-a-barrel drop. All 10 industries in the S&P 500 advanced at least 1.3 percent.

``There is some renewed hope that Congress will come back and try to get the amended plan through,'' Robert Doll, who oversees $1.3 trillion as chief investment officer of global equities at BlackRock Inc. in Plainsboro, New Jersey, said in a Bloomberg Television interview. ``We have to restore confidence, we have to reduce fear, we have to get banks to lend money.''

The S&P 500 rose 58.35 points, or 5.3 percent, to 1,164.74, its biggest rally since July 2002. The Dow Jones Industrial Average jumped 485.21, or 4.7 percent, to 10,850.66 and earlier gained more than 500 points. The Nasdaq Composite Index added 5 percent to 2,082.33. More than five stocks climbed for each that fell on the New York Stock Exchange.

Worst Since 2002

Even with the advance, the S&P 500 had its worst month since 2002, with a decline of 9.2 percent, and tumbled 9 percent for the quarter. The cost of borrowing dollars overnight increased the most on record after the defeat of the bailout plan.

About 1.62 billion shares changed hands on the NYSE, 15 percent more than the three-month moving average. European stocks rose, while Asian shares declined. Government bonds in the U.S. and Europe fell. The dollar climbed the most against the euro since the shared currency's 1999 introduction.

More than $1 trillion in market value was erased yesterday in the worst day for the S&P 500 since the ``Black Monday'' crash of 1987 after the House of Representatives rejected a plan designed to rid financial institutions of bad loans. President George W. Bush this morning urged passage of the legislation to prevent ``lasting damage'' to the economy.

The Dow average lost 6 percent in September, and the Nasdaq fell 12 percent. The S&P 500's retreat since the end of June was its fourth-straight quarterly decline, the longest stretch since 2001. The Dow slipped 4.4 percent and the Nasdaq tumbled 9.2 percent.

$600 Billion

The MSCI World Index of 23 developed nations dropped 12 percent this month as almost $600 billion of credit losses and writedowns at financial institutions worldwide prompted banks to hoard cash, forced Lehman Brothers Holdings Inc. into bankruptcy and spurred government seizures of American International Group Inc. and the U.K.'s Bradford & Bingley Plc.

Financial companies in the S&P 500 this month traded at 1.1 times their book value, the lowest valuation since Bloomberg began tracking the data in 1995. Commercial banks in the gauge trade at 0.8 times book value, also a 13-year low.

``The market was way overdone, and we're seeing a bounce back,'' said John Wilson, the co-director of equity strategy at Memphis, Tennessee-based Morgan Keegan, which manages $120 billion. ``The stage was set for saner minds to step in and pick some things off today. We've seen some nice gains in some of the financials.''

JPMorgan, Citigroup

JPMorgan, the biggest U.S. bank by deposits, climbed 14 percent to $46.70. Citigroup rose 16 percent to $20.51. Bank of America surged 16 percent to $35. Goldman Sachs Group Inc. increased 6.1 percent to $128 and Morgan Stanley gained 9.6 percent to $23.

Senate Majority Leader Harry Reid said approving the bank bailout legislation remains a top priority. Congress will take action on the plan this week, Senate Minority Leader Mitch McConnell said. Voters have flooded Capitol Hill offices with complaints about the bill's rejection, according to a House Republican leadership aide.

Bush said the defeat of the plan ``is not the end of the legislative process.'' Presidential candidates Barack Obama and John McCain joined him in urging Congress to return to work on the plan.

The S&P 500 Regional Banks Index of 12 stocks climbed 16 percent after plunging 24 percent yesterday, its biggest tumble since the gauge was created in 2003.

Sovereign Surges

Sovereign Bancorp, which plummeted 72 percent yesterday, surged 70 percent to $3.95. The second-largest U.S. savings and loan said its chief executive officer will be replaced and analysts raised their stock recommendations. The bank also said it sold its holdings of collateralized debt obligations and is ``well capitalized.''

National City Corp., Ohio's largest bank, climbed 29 percent after losing 63 percent yesterday. Fifth Third Bancorp increased 31 percent to $11.90.

Hess, the fifth-biggest U.S. oil company, added 7.8 percent to $82.08. Schlumberger, the largest oilfield-services contractor, climbed 5.9 percent to $78.09. Crude for November delivery rose $4.27, or 4.4 percent, to $100.64 a barrel on speculation that new action on the rescue plan may avert an economic slowdown that would curb demand. The fuel dropped the most in seven years yesterday.

Officials from Microsoft Corp. to Office Depot Inc. and Schering-Plough Corp. said the government's failure to bail out the U.S. banking industry put the entire economy at risk unless a deal comes soon. They called on lawmakers to put aside partisan differences and work to restore credit supplies and confidence to the financial markets.

Microsoft Gains

Microsoft, the world's biggest software maker, added 6.7 percent to $26.69 as Merrill Lynch & Co. recommended buying the shares. Schering-Plough, the Kenilworth, New Jersey-based drugmaker, rose 5.5 percent to $18.47. Office Depot, the second- largest office-supplies company, gained 2.5 percent to $5.82.

Apple Inc. jumped 8 percent to $113.66, the biggest advance since November. The stock's 18 percent drop yesterday was ``overdone,'' and the maker of the iPhone and Macintosh computer may climb to $145 in the ``intermediate term,'' according to Goldman Sachs.

Dr Pepper Snapple Group Inc. advanced 9.1 percent to $26.48. The drinks maker spun off by Cadbury Plc this year was picked to replace Wm. Wrigley Jr. Co. in the S&P 500. Wrigley is being acquired by closely held Mars Inc.

Hartford Financial Services Group Inc. fell the most in the S&P 500 on concerns the Connecticut-based insurer may need to raise capital after Fitch Ratings lowered its outlook. Hartford dropped 18 percent to $40.99.

VIX Retreats

The benchmark index for U.S. stock options slid 16 percent to 39.39 after closing yesterday at a record 46.72. The VIX, as the measure is known, is considered the market's ``fear gauge'' because it tends to rise as stocks fall. Stocks usually advance after the VIX peaks, according to a note to clients by Harrison, New York-based research firm Bespoke Investment Group LLC.

Transportation stocks yesterday signaled U.S. shares may be poised for more losses, according to Dow Theory, which holds that the 30-stock industrial average takes cues from the Dow Jones Transportation Average. The gauge of companies such as FedEx Corp. and Ryder Systems Inc. slid to the lowest level since March 17 yesterday. That may suggest the industrials' record 777.68- point plunge yesterday won't mark its bottom, investors said.

Consumer confidence unexpectedly rose in September in a survey taken before the recent worsening of the credit crisis and plunge in stocks. The Conference Board's confidence index rose to 59.8, a third consecutive increase, from 58.5 the prior month. A separate report showed home prices fell in July at the fastest pace on record from a year earlier.

Chicago PMI

A measure of U.S. business activity slowed for the first time in seven months as new orders and inventories weakened. The National Association of Purchasing Management-Chicago said its business index decreased to 56.7 this month from 57.9 in August. Fifty is the dividing line between growth and contraction.

The London interbank offered rate, or Libor, that banks charge each other for overnight loans jumped 431 basis points to an all-time high of 6.88 percent, the British Bankers' Association said today.

Europe's Dow Jones Stoxx 600 Index added 1.8 percent as Dexia SA, the world's biggest lender to local governments, climbed 6.1 percent on a 6.4 billion-euro ($9.2 billion) state- backed rescue.

Anglo Irish Bank Corp. Plc rallied 67 percent after Ireland's government said it will guarantee bank deposits and debts for two years, seeking to restore confidence in the country's financial industry.

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