U.S. Stocks Post Biggest Weekly Gain Since 1974 as Banks Rally

By Lynn Thomasson

Nov. 29 (Bloomberg) -- U.S. stocks staged the biggest weekly rally in more than 30 years after the government agreed to protect Citigroup Inc. from more losses and automakers weighed cutting costs to win federal aid.

Citigroup doubled on the government’s plan to insure $306 billion in toxic assets owned by the bank, helping push financial companies in the Standard & Poor’s 500 Index to a record 31 percent advance. General Motors Corp. soared 71 percent as the company considered selling some U.S. brands. Ford Motor Co. jumped 88 percent.

The S&P 500 rose 12 percent to 896.24, the steepest weekly gain since 1974. The Dow Jones Industrial Average increased 782.62 points, or 9.7 percent, to 8,829.04. The Russell 2000 Index of small-cap stocks climbed 16 percent to 473.14.

“It’s refreshing to see some rationality returning to stock prices,” said Richard Weiss, chief investment officer at City National Bank in Beverly Hills, California. “The central banks and central finance authorities are doing exactly what’s needed at this point.”

Stocks advanced after the Federal Reserve stepped up efforts to unfreeze credit markets and President-elect Barack Obama picked a team of financial and economic advisers, including former Federal Reserve Chairman Paul Volcker. U.S. exchanges were closed on Nov. 27 for the Thanksgiving holiday.

Citigroup Shares Double

The gains ended a three-week slump in the S&P 500 spurred by concern the U.S. auto industry may collapse and profit reports that showed the recession intensifying. The stock benchmark is down 39 percent this year, the worst performance since 1931.

Citigroup, the second-biggest U.S. bank by assets, rose 120 percent to $8.29. A 60 percent plunge in the company’s stock price the previous week pushed regulators to stabilize the bank by injecting $20 billion and agreeing to cover losses related to its troubled assets. The government gets preferred shares and warrants equivalent to a 4.5 percent stake.

Financials in the S&P 500 climbed the past five trading sessions, the longest stretch of gains since October 2007. This week’s advance was the steepest since S&P created the industry group 19 years ago.

JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. surged more than 39 percent each.

‘Relief Rally’

“People are looking for any reason to hope and that’s why this has all the markings of a relief rally,” said Daniel McMahon, director of equity trading at Raymond James & Associates Inc. in New York. “I don’t know how sustainable it is.”

The VIX, as the Chicago Board Options Exchange Volatility Index is known, tumbled 24 percent to 55.28. The index measures the cost of using options as insurance against declines in the S&P 500.

GM had the biggest gain in at least 28 years, rallying $2.18 to $5.24. The largest U.S. automaker is considering shedding its Saturn, Saab and Pontiac brands, according to people familiar with the matter. Ford increased $1.26 to $2.69.

“We envision the current Congress will authorize a short- term bridge loan that carries” GM, Ford and Chrysler LLC to the start of President-elect Obama’s administration in January, JPMorgan analyst Himanshu Patel wrote in a note dated Nov. 25.

Homebuilders Surge

Homebuilders in the S&P 500 jumped 59 percent on a new central bank plan to revive mortgage lending. The Fed pledged to buy $600 billion in debt issued or backed by government- chartered housing finance companies and said it would start a $200 billion program to support consumer and small-business loans.

D.R. Horton Inc., the largest U.S. homebuilder, rose 58 percent to $6.87 even after cutting its dividend and reporting a sixth straight quarterly loss.

Car companies and homebuilders helped lead the S&P 500 Consumer Discretionary Index to a 17 percent advance, the steepest in the history of the group.

Apple Inc. climbed 12 percent to $92.67, the most in two years. JPMorgan analysts boosted the company’s fiscal 2009 profit estimate and said sales growth for notebook computers is accelerating.

Just 17 stocks in the S&P 500 fell this week. Campbell Soup Co. posted the biggest loss, dropping 12 percent to $32.05. The world’s largest soupmaker reported sales that trailed analysts’ average estimate by 2.6 percent, according to Bloomberg data.

Employers probably slashed more jobs and manufacturing may have contracted at the fastest pace in a quarter century as the recession worsened, economists said before reports next week.

Sears Holdings Corp., Big Lots Inc. and Staples Inc. are among the S&P 500 companies scheduled to report earnings next week.

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