By Lynn Thomasson
Dec. 20 (Bloomberg) -- U.S. stocks posted the first back-to- back weekly gains in three months as the Federal Reserve reduced interest rates to a record low and President George W. Bush granted emergency loans to General Motors Corp.
XL Capital Ltd. and Macy’s Inc. surged more than 24 percent as the central bank cut the main U.S. rate to as low as zero and pledged to “employ all available tools” to end the yearlong recession. GM jumped 23 percent yesterday as Bush gave the automaker and Chrysler LLC up to $17.4 billion and said the companies must restructure.
The Standard & Poor’s 500 Index rose 0.9 percent to 887.88. The measure, which has increased 18 percent since its 11-year low on Nov. 20, is still down 40 percent in 2008. The Dow Jones Industrial Average slipped 0.6 percent to 8,579.11 this week.
“We’re still in a bear market, but right now it should be a good period of time for the market,” said David James of Xenia, Ohio-based James Investment Research, which manages $2 billion. “The market is ready to rally.”
The S&P 500 climbed 5.1 percent to a five-week high on Dec. 16 after the Fed said that it will target a federal funds rate of between zero and 0.25 percent, a reduction from 1 percent. The Fed may also increase asset purchases and lend against lower- quality debt should Treasury provide funding, a senior central bank official said.
“Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” the Federal Open Market Committee said in a statement.
Decline Protection
The VIX, as the Chicago Board Options Exchange Volatility Index is known, tumbled 17 percent to 44.93, the lowest level since Oct. 1. The index gauges how much investors are paying for insurance against declines in the S&P 500.
The S&P 500 Financials Index climbed 2.7 percent, the most in three weeks. XL Capital, the Bermuda-based insurer seeking a buyer, soared 49 percent to $4, on speculation that billionaire investor Warren Buffett was considering a bid for the company.
Macy’s increased 25 percent to $10.62 after it negotiated a more flexible bank-credit agreement to remove doubts about its ability to pay off $950 million in debt maturing next year.
Goldman Sachs Group Inc. gained 19 percent to $80.73. The New York bank reported a fourth-quarter loss of $4.97 a share, smaller than analysts’ most pessimistic estimates.
Morgan Stanley increased 12 percent to $15.45. The stock rose even after the company posted $2.2 billion fourth-quarter loss, wider than analysts estimated, as investment-banking fees slid and the value of fixed-income securities declined.
‘Bottoming Process’
“I don’t expect that we’re going to be off to the races, but we are in a bottoming process,” Dean Gulis, part of a group that manages about $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan, said of the stock market.
The rally spurred by the Fed’s rate cut pushed the S&P 500 above its average level during the prior 50 days, a signal to some traders that the advance will continue. The index exceeded its so-called 50-day moving average for the first time since Sept. 3, breaking the longest stretch below since August 2002, according to data from Bespoke Investment Group LLC.
GM, the biggest U.S. automaker, rallied 14 percent to $4.49 for the week. Under the terms of the rescue plan, the government’s debt would have priority over any other creditors. The automaker also must provide warrants for non-voting stock, accept limits on executive pay, and give the government access to financial records.
1.1 Million Workers
The cost of letting automakers fail would lead to a 1 percent reduction in U.S. economic growth and mean about 1.1 million workers would lose their jobs, including those in the auto-supply business and among dealers, the White House said.
Darden Restaurants Inc. surged 30 percent to $28.55 for the biggest weekly gain since it began trading 13 years ago. The owner of the Olive Garden and Red Lobster chains reported second- quarter profit that exceeded analysts’ estimates after cutting commodity and labor costs.
The biggest weekly decline by oil since 1991 led energy stocks lower and limited the S&P 500’s advance. Exxon Mobil Corp., Chevron Corp. and National Oilwell Varco Inc. dropped more than 5 percent.
Crude tumbled 27 percent to $33.87 a barrel, the lowest price since February 2004. The fuel has lost three-quarters of its value since July.
Newell Rubbermaid Inc. sank 25 percent to $9.50, the biggest loss in at least 28 years, after the maker of Calphalon cookware said 2008 profit would be less than previously forecast because of the weakening economy.
Spending by American consumers fell in November for a record fifth month, while home sales and orders for durable goods also declined as the recession deepened, economists said before reports next week. Walgreen Co. and Micron Technology Inc. are among companies reporting quarterly results.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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