By Cristina Alesci and Jeff Kearns
March 3 (Bloomberg) -- U.S. stocks rebounded from a 12-year low as commodity producers rallied on speculation China will boost demand for raw materials, while banks were lifted by the government’s plan to loan money to buyers of distressed assets.
Freeport-McMoRan Copper & Gold Inc. jumped 7.7 percent as China, the world’s largest consumer of copper, said its economy will recover this year. Exxon Mobil Corp. and Chevron Corp. climbed as oil rose following yesterday’s 10 percent slump. Citigroup Inc. and Bank of America Corp. added more than 7 percent after the Federal Reserve said its $1 trillion plan to revive credit markets will start disbursing funds on March 25.
“The government is finally starting to get a clue and address the instability in the markets, aid the banks and jumpstart lending,” said Nick Kalivas, a trading analyst at MF Global Inc. in Chicago. “The banking system has been creamed and people have lost confidence, so these measures show the government becoming more sensitive to the bad asset issue.”
The S&P 500 increased 0.6 percent to 704.68 at 10:13 a.m. in New York after closing at the lowest level since October 1996 yesterday. The Dow Jones Industrial Average gained 30.19 points, or 0.5 percent, to 6,793.48 and the Russell 2000 Index rose 0.1 percent.
The S&P 500 advanced for the first time in five days after yesterday’s sell-off left companies in the index valued at their cheapest relative to earnings since 1986. The index traded at 12.2 times company profits from the past 10 years as of yesterday’s close, according to data compiled by Yale University professor Robert Shiller, who uses a decade of earnings to smooth out short-term fluctuations.
‘Shambles’
The Dow average dropped below 7,000 for the first time since 1997 yesterday after Warren Buffett said the economy is in “shambles” and American International Group Inc. posted the largest corporate loss in U.S. history.
Mining shares rose as copper jumped the most in three weeks on speculation that demand will rebound in China. The Reuters/Jefferies CRB Index of 19 commodities added 1.3 percent, led by copper. Freeport-McMoRan rallied 7.7 percent to $28.53 and Southern Copper Corp. added 5.2 percent to $13.43.
China’s economy, being dragged down by its worst export slump in more than a decade, will rebound this year as the government’s 4 trillion yuan ($585 billion) stimulus plan takes effect, officials said.
China Recovery ‘Likely’
A recovery in the first half is “very likely,” central bank Vice Governor Su Ning told reporters as the annual meeting of China’s top advisory body started in Beijing today. The government is “confident” of achieving its 8 percent growth target, Minister of Industry and Information Li Yizhong said.
Energy producers rose as crude climbed amid sabotage of a pipeline in Nigeria. Exxon Mobil added 1.1 percent to $65.65. Chevron gained 1.2 percent to $58.33. Crude futures rebounded as much as 4.8 percent to $42.07 a barrel on the New York Mercantile Exchange.
Financial shares in the S&P 500 advanced 1.1 percent after sliding 6.8 percent yesterday. Citigroup rose 7.5 percent to $1.29 and Bank of America gained 7.4 percent to $3.90.
The Fed said its $1 trillion program to prop up the market for consumer and business loans will start disbursing funds March 25 and will probably accept securities backed by vehicle- fleet and equipment leases.
Chairman Ben S. Bernanke and his colleagues, after cutting the benchmark interest rates almost to zero, are counting on the Term Asset-Backed Securities Loan Facility to help revive credit and end what may become the deepest U.S. recession since World War II.
Bernanke Testimony
Bernanke said policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits, according to testimony prepared for the Senate Budget Committee.
The deepening global recession, a third government rescue for Citigroup and dividend cuts at companies from General Electric Co. to JPMorgan Chase & Co. have dragged the S&P 500 to three consecutive weeks of declines, pushing the index down 21 percent this year.
The S&P 500 was “oversold” yesterday if its relative strength index is any indication, Michael O’Rourke, chief market strategist at New York-based BTIG LLC said. The S&P 500’s 14-day relative strength index, or RSI, fell to 27.47 yesterday, below the level of 30 that some traders use as a signal to buy.
The S&P 500 has dropped 55 percent since its October 2007 record close as credit-related losses at financial firms worldwide reached $1.1 trillion and Europe, the U.S. and Japan fell into the first simultaneous recessions since World War II.
To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.
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