U.S. Stocks Rise, Led by Banks, Retailers; Amazon.com Jumps

By Elizabeth Stanton

Dec. 3 (Bloomberg) -- U.S. stocks rose for a second day as a jump in online spending and a record increase in mortgage applications lifted retailers and banks, overshadowing concern the worsening recession will reduce demand for commodities.

Amazon.com Inc. rose 10 percent after research firm ComScore Inc. said Internet purchases at U.S. retailers increased 15 percent on Dec. 1. Morgan Stanley and Pulte Homes Inc. climbed more than 13 percent as government cash injections into the mortgage market spurred the increase in home-loan applications. Freeport-McMoRan Copper & Gold Inc. slid 17 percent as the largest public copper company cut production and suspended its dividend amid “dramatic” price drops.

The Standard & Poor’s 500 Index climbed for the seventh time in eight days, rallying 2.6 percent to 870.74 after earlier sliding as much as 2.5 percent. The Dow Jones Industrial Average added 172.6, or 2.1 percent, to 8,591.69. The Nasdaq Composite increased 2.9 percent to 1,492.38. Almost three stocks rose for each that fell on the New York Stock Exchange.

“More and more, it looks like a bottom,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees $220 billion. “Value is clearly there. It’s showing up everywhere now. Value becomes so compelling that you overcome your fears.”

Retailers, banks and homebuilders helped fuel an advance that overpowered declines in the first hour spurred by an ADP Employer Services report that companies cut 250,000 jobs last month, the most in seven years, and a drop in the Institute for Supply Management’s service-industry index to the lowest since records began in 1997.

16 Percent Rebound

The S&P 500 has rallied almost 16 percent since falling to an 11-year low on Nov. 20 as the government protected Citigroup Inc. from further credit losses and the Federal Reserve committed as much as $800 billion to resuscitate lending.

The market may rise as much as 20 percent next year if the U.S. can avert a Depression-type scenario with soaring unemployment and a decline in gross domestic product exceeding 15 percent, said Bill Miller, the Legg Mason Inc. fund manager mired in the worst slump of his 27-year career.

“It may be that a bottom has been made,” Miller said at an investor conference in New York. “It may be that the market will keep moving sideways.”

Amazon.com, the largest Internet retailer, climbed $4.02 to $45.21. The shares helped lead a 6.3 percent jump in the S&P 500 Retailing Index, the second-biggest gain among 24 industry groups after banks.

‘Cyber Monday’

Web merchants lured customers with discounts on clothing and electronics on “Cyber Monday,” the first workday after the Thanksgiving holiday, ComScore said. Internet purchases from U.S. retailers increased to $846 million that day, the second-biggest amount on record, the research firm said.

Twenty-four of the 27 shares in the S&P 500 Retailing Index advanced, led by Bed Bath & Beyond Inc. The largest U.S. home- furnishings retailer gained 14 percent to $22.49 even after its estimate of fiscal third-quarter profit fell short of the average analyst estimate.

Kohl’s Corp., the fourth-largest U.S. department store company, gained 8.7 percent to $33.37. Target Corp., the second- largest U.S. discount retailer, increased 9.4 percent to $34.48. Most retailers will release November sales results tomorrow.

Morgan Stanley rallied 15 percent to $13.85, even after JPMorgan Chase & Co. and Merrill Lynch & Co. predicted the Wall Street firm will report a fourth-quarter loss.

Banks Gain

The S&P 500 Financials Index climbed 5.6 percent, extending a gain from its Nov. 20 low to 28 percent. JPMorgan Chase & Co. climbed 6 percent to $30.25, while Citigroup added 8.3 percent to $7.82 and Bank of America Corp. increased 7.1 percent to $15.05.

Pulte Homes, the third-largest U.S. homebuilder, climbed $1.32 to $11.14, while Hovnanian Enterprises Inc., New Jersey’s biggest, jumped 17 percent.

Mortgage rates could stabilize around 4.5 percent to 5 percent after the Federal Reserve pledged to buy $500 billion in mortgage and agency debt, Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, told CNBC. Mortgage applications surged a record 112 percent last week as lending rates plunged after the Fed’s announcement, the Mortgage Bankers Association said today. The rate on 30-year fixed mortgages dropped to 5.47 percent, a three-year low.

Freeport-McMoRan Copper & Gold Inc. tumbled $3.77 to $18.05. The copper producer said it will reduce output by 5 percent next year and 11 percent in 2010 after a “sharp decline” in prices. The company’s $2 annual payout to shareholders was suspended.

SanDisk, CIT Group

SanDisk Corp. rose the most in the S&P 500, gaining 25 percent to $9.02 on speculation Toshiba Corp. may bid for the world’s largest maker of memory cards used in digital cameras.

CIT Group Inc. rose more than 20 percent for the second straight day, adding 81 cents to $4.26, the highest since Nov. 10. The largest U.S. independent commercial lender yesterday said it will expand its plan to increase regulatory capital for its application to become a bank holding company and access U.S. government bailout funds.

Intuitive Surgical Inc. climbed 13 percent to $133.07. The maker of robotic systems for surgeries announced a new severance plan that may signal a “potential future take-out offer,” Lazard Capital Markets Ltd. said.

U.S. equities rose yesterday, rebounding from the market’s worst tumble since October, after General Electric Co. announced plans to maintain its dividend and the Fed extended terms of three emergency loan programs.

‘Extreme Volatility’

The 30-company Dow average has swung by an average of 517 points between intraday highs and lows over the last two months, and the 20-day average exceeded a record 600 points in October. It swung 390 points today.

“We’ve got extreme volatility because a segment of the market thinks we may be at or have already hit the low, and a segment fears there’s a lot more downside to come,” said Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, which manages $2.5 billion.

Dividends are disappearing at the fastest rate in 50 years as the recession forces companies to conserve cash. Citigroup Inc., Genworth Financial Inc. and New York Times Co. led at least 91 companies listed on the biggest U.S. exchanges in reducing or suspending payouts in November, the most since May 1958, according to data compiled by Standard & Poor’s.

Alcoa Falls

Alcoa Inc., the largest U.S. aluminum producer, fell 4.8 percent to $9.29 for the biggest drop in the Dow average. Materials producers, which held their value during the first half of the year as the S&P 500 fell 13 percent, are its worst performing industry since then, losing half their value. The group fell 0.2 percent today, the only drop among the index’s 10 main industries.

Schlumberger Ltd., the world’s largest oilfield-services company, fell 3.2 percent to $42.53. Full-year profit will miss analysts’ estimates because of “the worldwide economic slowdown and its effect on oil and gas exploration production spending,” the company said in a statement.

Smith International Inc., the world’s fourth-largest oilfield-services provider, fell 10 percent to $21.54 for the second-biggest drop in the S&P 500.

Earnings dropped 17 percent on average at companies in the S&P 500 that reported third-quarter results and analysts estimate full-year profits will fall 11 percent, data compiled by Bloomberg show. That compares with 15 percent growth forecast in January.

“The recession we’re in is going to be longer and probably the worst since the Great Depression,” said David James, a portfolio manager at James Investment Research in Xenia, Ohio, which oversees $2 billion. “I don’t think we’ve set the lows of the bear market, which will be much, much lower.”

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