U.S. Stock Futures Gain; GE, Bank of America Shares Advance

By Lynn Thomasson

Jan. 6 (Bloomberg) -- U.S. stock-index futures gained as speculation that a stimulus package from President-elect Barack Obama will revive the economy overshadowed concern that reports will show the recession deepened at the end of 2008.

General Electric Co., the world’s biggest maker of power generation equipment, and Bank of America Corp. advanced more than 1 percent. Dow Chemical Co. climbed 3.7 percent on its plan to pursue more than $2.5 billion in damages from Kuwait after the country’s government canceled a joint-venture agreement. Apple Inc. climbed 1.9 percent as Oppenheimer & Co. said yesterday’s disclosure about Chief Executive Officer Steve Jobs’ health eased concerns about the company’s leadership.

The Standard & Poor’s 500 Index rebounded 23 percent since Nov. 20 on optimism that Obama will boost the world’s biggest economy with tax cuts and the largest infrastructure investment since the 1950s. The Federal Reserve has slashed interest rates to as low as zero percent, while the European Central Bank also has scope to reduce borrowing costs further after the region’s inflation rate fell to the lowest in more than two years.

“It’s hard not to be positive given how much stimulus is coming through the pipe,” Jason Pride, research director for Haverford Trust Co., which oversees $5.5 billion in Haverford, Pennsylvania, said in a Bloomberg Television interview. “In the back half of ‘09, we do expect some form of recovery.”

Futures on the S&P 500 expiring in March rose 0.8 percent to 934.8 at 8:49 a.m. in New York. Dow Jones Industrial Average futures increased 61 points, or 0.7 percent, to 8,979. Nasdaq-100 Index futures gained 1 percent to 1,277.25.

Europe’s Dow Jones Stoxx 600 Index rose for a sixth day, adding 2.1 percent as forecasts from U.K. retailers reassured investors. More than five shares rose for every four that fell in the MSCI Asia Pacific Index, which slipped 0.1 percent.

$1 Trillion

Global stocks rebounded this year after $1 trillion in credit losses and writedowns at financial firms and the first simultaneous recessions in the U.S., Europe and Japan since World War II sent the MSCI World Index to a 42 percent slump in 2008. The S&P 500’s longest stretch of gains since November was halted yesterday on concern that a slump in corporate profits will stretch into 2009.

Obama told House Speaker Nancy Pelosi he favors a price tag of about $775 billion for the U.S. economic stimulus plan, according to a Democratic aide. Fed officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending.

Fed Chairman Ben S. Bernanke sees the thawing of frozen credit markets as critical to a recovery, and is determined to try to prevent a second wave of credit distress as the U.S. weathers bad economic news over the next two quarters.

GE, Caterpillar

GE added 1.2 percent to $16.80. Caterpillar Inc., the world’s largest maker of earthmoving equipment, increased 1 percent to $46.54. Bank of America gained 1.4 percent to $14.18. Citigroup Inc., the second-largest U.S. bank, advanced 2 percent to $7.22.

Apple rose $1.57 to $96.15. “We’re satisfied that a sudden change of leadership is not imminent,” wrote Oppenheimer analyst Yair Reiner. Jobs’ statement yesterday capped months of speculation that he may have to stop running Apple and hand the CEO job to Chief Operating Officer Tim Cook.

Tax Cuts

U.S. construction companies and investment banks will be among the prime beneficiaries of business tax cuts proposed by Obama, the Wall Street Journal said. Proposals being drafted by congressional Democrats and the incoming administration would allow companies to use tax losses to reduce taxable U.S. profit earned in the last five years, the newspaper said.

Investors should favor U.S. companies that generate most of their revenue at home rather than in Western Europe, Goldman Sachs Group Inc. said in a note. The brokerage has an “overweight” recommendation on the consumer-staples and health- care industries.

“The S&P 500 will begin to trade meaningfully higher once we pass four critical milestones,” Goldman Sach’s New York-based strategist David Kostin wrote. “Passage of a fiscal stimulus plan in the first quarter, improved access to credit for corporations and consumers, home price stabilization and declines in financial writedowns.”

Dow Chemical, the largest U.S. chemical maker, rallied 3.7 percent to $15.60 after Chief Executive Officer Andrew Liveris said the company will pursue “multiple billions of dollars” in damages against Kuwait at a London arbitration forum and in court.

Economy Watch

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the U.S. economy, fell to 36.5 in December, the lowest level since records began in 1997 as consumers retrenched and the housing slump worsened, according to the median forecast in a Bloomberg survey of economist. Readings below 50 indicate a contraction. The report is due at 10 a.m. in Washington.

A report from the Commerce Department at the same time is expected to show U.S. factory orders slid 2.3 percent in November, after a 5.1 percent drop the prior month, according the a Bloomberg survey.

The National Association of Realtors’ index of signed purchase agreements for homes probably fell 1 percent in November, according to Bloomberg data.

Concern that stock losses will deepen remains elevated even after falling from record levels in October and November. The Chicago Board Options Exchange Volatility Index, which measures price swings in the S&P 500, has surged 74 percent since the start of 2008 to 39.08.

Garmin Ltd. dropped 6.3 percent to $20.62. Goldman Sachs added the largest U.S. maker of car-navigation devices to its “conviction sell” list, downgrading it from “neutral.”

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