By Michael Patterson
Nov. 24 (Bloomberg) -- U.S. stock-index futures climbed after the government said it will guarantee $306 billion of troubled Citigroup Inc. assets and Democratic lawmakers pledged to pass an economic stimulus package by January.
Citigroup jumped 59 percent after the Treasury Department also agreed to inject $20 billion into the bank. JPMorgan Chase & Co. added 4.7 percent and Bank of America Corp. rose 6.5 percent as the guarantee eased concern that a flight of depositors might destabilize Citigroup, which has $2 trillion of assets. Intel Corp. and Alcoa Inc. climbed after Senator Charles Schumer said the stimulus plan may approach $700 billion.
Futures on the Standard & Poor’s 500 Index expiring in December added 2.6 percent to 812.6 at 9:08 a.m. in New York, signaling the index may extend its rebound from an 11-year low last week. Dow Jones Industrial Average futures climbed 1.4 percent to 8,150 and Nasdaq-100 Index futures rose 2.2 percent to 1,114.5. Europe’s Dow Jones Stoxx 600 Index increased 3.5 percent, while the MSCI Asia Pacific Index slipped 0.5 percent.
“Action clearly had to be taken to address the capital position of Citigroup,” Bob Parker, vice chairman of Credit Suisse Asset Management, which oversees about $600 billion, said in an interview with Bloomberg Radio from London. “For the whole system, it’s going to be a very slow, long, drawn out process, but I am encouraged. I’m assuming that there is going to be a very major, $500 billion plus, fiscal expansion plan announced in January.”
Citigroup Rallies
The S&P 500 rallied 6.3 percent on Nov. 21, paring a third straight weekly decline, after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner as Treasury secretary. The index has tumbled 46 percent this year after almost $1 trillion of financial-company losses caused corporate profits to fall for five straight quarters. Concern Citigroup may need a government rescue sent bank stocks down 24 percent last week, the steepest slide in at least 19 years.
Citigroup climbed $2.23 to $6 today. The cash injection from the Treasury adds to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.
The Treasury, Fed and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial- market stability and help restore economic growth.
‘Main Focus’
“With Citigroup hanging in the low single digits, the market was calling for either a breakup or some kind of resolution,” said Jack Ablin, who helps manage about $60 billion as chief investment officer of Harris Private Bank in Chicago. “This is going to be the main focus of market activity. It should be good news.”
The Financial Select Sector SPDR Fund, an exchange traded fund of financial stocks known by its XLF ticker symbol, advanced 5.2 percent to $10.18. JPMorgan added $1.06 to $23.78 and Bank of America increased 74 cents to $12.21.
Congress will send President-elect Barack Obama an economic stimulus package the day he takes office Jan. 20, Democratic lawmakers said. Senator Schumer of New York said on ABC’s “This Week” program that the package will be between $500 billion and $700 billion. House Majority Leader Steny Hoyer of Maryland said on “Fox News Sunday” that he believed the Inauguration Day goal would be met. He declined to put a price tag on the bill.
Intel, the world’s largest semiconductor maker, gained 1.4 percent to $13.30. Alcoa, the biggest U.S. aluminum producer, increased 3.4 percent to $8.73.
Energy Shares Rise
Energy companies climbed as oil rallied above $51 a barrel in New York on a retreat in the U.S. currency.
Exxon Mobil Corp., the country’s largest oil company, advanced 1 percent to $76.55. Chevron Corp., the second-biggest, rose 1.2 percent to $71.34.
U.S. home resales dropped in October at the fastest pace in 13 months, signaling a deepening housing recession going into 2009, economists said before a private report today.
Purchases of existing homes probably fell 3.5 percent last month to a 5 million annual pace, the biggest monthly drop since September 2007, according to the median estimate of economists surveyed by Bloomberg News. The National Association of Realtors’ resales report is due at 10 a.m. in Washington.
General Motors Corp., the automaker in danger of running out of cash this year, will seek to negotiate a cut in debt levels and new union work rules to help boost its chances of winning federal loans, people familiar with the plan said. Directors are scheduled to meet by phone today, Nov. 26 and Nov. 28, and then gather Nov. 30 and Dec. 1 to review the plan, the people said. The shares gained 15 cents to $3.21.
Investors are paying $9.24 per dollar of operating profit forecast in 2009 for S&P 500 companies, half the two-decade median of $18.10, data compiled by Bloomberg show. Stock valuations suggest S&P 500 profits may decrease as much as 42 percent next year amid forecasts for the worst recession in more than two decades.
To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.
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