U.S. Stocks Gain After Fed Announces $800 Billion Lending Plan

By Elizabeth Stanton

Nov. 25 (Bloomberg) -- U.S. stocks climbed and the Standard & Poor’s 500 Index posted its first three-day advance since September after the Federal Reserve committed as much as $800 billion to help resuscitate lending.

D.R. Horton Inc. rallied 38 percent to lead homebuilders in the S&P 500 to a 20 percent gain as the Fed announced the new funding. SLM Corp., the student lender known as Sallie Mae, and CIT Group Inc., the commercial-finance company, jumped more than 20 percent. Cisco Systems Inc. and Hewlett-Packard Co. led a decline in technology companies, limiting the market’s advance, on concern the recession is hurting demand.

The S&P 500 added 0.7 percent to 857.39, extending its rebound from an 11-year low on Nov. 20 to 14 percent. The Dow Jones Industrial Average increased 36.08 points, or 0.4 percent, to 8,479.47. The Nasdaq Composite Index slipped 0.5 percent to 1,464.73. Almost two stocks rose for each that fell on the New York Stock Exchange.

“This is a more direct effort, as opposed to shoring up the balance sheets of key banks,” Erick Maronak, the New York- based chief investment officer at Victory Capital Management, which oversees $61 billion, said of the Fed’s lending program. “Hopefully that alone will restore confidence and get things moving again.”

The S&P 500 yesterday capped its biggest two-day gain since 1987 as confidence in the financial system was boosted by the government’s guarantee of troubled assets at Citigroup Inc. and President-elect Barack Obama announced his team of financial advisers. Obama’s picks included Fed Bank of New York chief Tim Geithner as Treasury secretary and former Harvard University President Lawrence Summers as White House economic director.

Drifting

The benchmark for U.S. equities drifted between gains and losses more than 20 times today as optimism about the Fed’s plan was tempered by declines in computer-related stocks.

SLM climbed $1.74 to $9.64 and CIT group added 49 cents to $2.87. D.R. Horton, the largest U.S. builder, jumped $1.90 to $6.90 even after the company reported its sixth straight quarterly loss and cut its dividend to conserve cash.

Fannie Mae and Freddie Mac, the largest U.S. mortgage- finance companies which were placed under government conservatorship in September, rallied 38 percent and 18 percent respectively.

Lincoln National Corp. and Hartford Financial Services Group Inc., insurers whose shares were pummeled by losses on investments, rose 44 percent and 13 percent respectively.

$800 Billion

The Fed will purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the central bank said in statements today in Washington.

The Fed’s debt-purchase program is the latest in a series of federal government initiatives over the past year aimed at blunting the economic harm from the collapse of the U.S. subprime mortgage market.

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., among the 10 biggest diversified financial companies, advanced more than 6.4 percent each as they prepared to sell debt backed by the Federal Deposit Insurance Corp. under a program finalized last week. Goldman sold $5 billion of government-backed notes today.

E*Trade, Citigroup

E*Trade Financial Corp. rose 50 percent to $1.32 for the biggest gain in the S&P 500. The fourth-biggest online brokerage by client assets said it’s “optimistic” it will get approval to receive funds from the government’s Troubled Asset Relief Program.

Citigroup, the New York-based bank that got $306 billion of loan guarantees from the government over the weekend, added 13 cents to $6.08. Chief Financial Officer Gary Crittenden said in a Bloomberg Television interview that there is “no need for us to sell assets at this point, although we’ll continue to work away on non-strategic assets.”

The S&P 500 Financials Index climbed 2.5 percent, adding to yesterday’s record gain of 19 percent. The group of banks, investment firms and insurers has rallied 26 percent since Nov. 20, trimming its 2008 decline to 60 percent.

Hewlett-Packard fell $2.10, or 5.9 percent, to $33.60 for the biggest drop in the Dow average even after the world’s biggest personal-computer maker yesterday reported a 10 percent increase in PC sales last quarter, beating some estimates. The economic slowdown may limit Hewlett-Packard’s ability to boost margins and could put its 2009 revenue forecast at risk, Maynard Um, an analyst at UBS AG in New York, said today in a note.

Tech Slump

Cisco, the biggest maker of networking equipment, slumped 6 percent to $15.42. The company plans to shutter its North American offices for five days for the first time in more than a decade as it seeks to shave $1 billion in costs.

Analog Devices Inc. fell 6.7 percent to $16.95. The maker of semiconductors for companies including Cisco posted earnings that trailed estimates and forecast a drop in revenue in the first quarter from the previous quarter as it cuts production to match slower demand.

Semiconductor-related companies in the S&P 500 lost 3.1 percent collectively for the biggest tumble among 24 industries after Citigroup cut earnings estimates for Advanced Micro Devices Inc., Qualcomm Inc., Texas Instruments Inc. and Nvidia Corp., citing a “bad” October.

Research In Motion Ltd., maker of the BlackBerry mobile e- mail device, fell 8.3 percent to $41.50. Keith Bachman, an analyst at BMO Capital Markets in New York, said shipments of the company’s new Storm device are delayed.

Economy Watch

Stocks rose at the open as the Fed’s plan overshadowed a Commerce Department report showing the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised figures released today. The government’s advance estimate issued last month showed a 0.3 percent decline.

“Earnings forecasts of companies are being revised significantly downward, especially in the last week to 10 days,” said Komal Sri-Kumar, chief global strategist at TCW Group Inc. in Los Angeles, which manages $120 billion. “That’s having a depressing effect on prices even as optimism about stimulus and the incoming administration and the likelihood of a more consistent set of economic measures is helping the stock market.”

Housing Slump

An industry report showed house prices in 20 U.S. cities declined in the year ended in September at the fastest pace on record because of rising foreclosures. The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007. Year-over-year records began in 2001.

CB Richard Ellis Group Inc. lost 11 percent to $4.49. The world’s largest commercial real estate broker said office rents in London’s West End, midtown Manhattan and Tokyo fell in the third quarter for the first time in almost seven years as the global financial crisis cut demand.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net