U.S. Stocks Rise on Debt Crisis Hopes

By Rita Nazareth - Oct 12, 2011 8:49 PM GMT+0700

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a third straight day, on investors’ optimism Europe will contain its debt crisis.

Bank of America Corp. (BAC) and Morgan Stanley added at least 1.3 percent, following a rally in European lenders. Freeport-McMoRan Copper & Gold Inc. (FCX) and Apple Inc. (AAPL) climbed more than 2.2 percent to pace gains among companies most-reliant on economic growth. PepsiCo Inc., the world’s largest snack-food maker, increased 3 percent as profit beat analysts’ estimates. Alcoa Inc. (AA) slumped 3.2 percent as earnings trailed projections.

The S&P 500 advanced 0.6 percent to 1,202.68 at 9:49 a.m. New York time, gaining 4.1 percent in three days. The Dow Jones Industrial Average climbed 58.73 points, or 0.5 percent, to 11,475.03, paring this year’s decline to 1 percent.

“There are a lot of things that can go right or wrong, but our playbook has been that the stock market is not going to have a major decline,” Liam Dalton, chief executive officer of Axiom Capital Management Inc., in New York, which oversees $1.8 billion, said in a telephone interview. “The process in Europe is likely to be resolved. Earnings are looking like they will be relatively good. With this set of circumstances, the market doesn’t want to turn back lower over the near term.”

The S&P 500 fell as much as 19 percent from its three-year high in April through Aug. 3, on a closing basis, on concern about Europe’s debt crisis. Gauges of financial, commodity and industrial shares in the index slid more than 26 percent over that period. The S&P 500 last week rose from the threshold of a bear market on optimism Europe will tame its crisis.

‘Calamity’

European Economic and Monetary Affairs Commissioner Olli Rehn said the region is moving toward a consensus on resolving the “calamity” of the debt crisis. European Commission President Jose Barroso called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes.

“The more we see evidence there’s not going to be a global collapse, the more markets will feel encouraged and realize they’re on the wrong multiple, so price-earnings ratios will rise,” said Graham Bishop, a European equity strategist at Royal Bank of Scotland Group Plc.

The Morgan Stanley (MS) Cyclical Index of companies most-tied to economic growth added 1.3 percent. The Dow Jones Transportation Average rose 0.8 percent. The KBW Bank Index gained 1.6 percent. Bank of America advanced 1.3 percent to $6.45. Morgan Stanley increased 2.1 percent to $15.71. Freeport, the world’s largest publicly traded copper producer, climbed 4.4 percent to $36.76. Apple increased 2.2 percent to $408.92.

PepsiCo Jumps

PepsiCo jumped 3 percent to $62.76 after saying third- quarter profit rose 4.1 percent as sales of Frito-Lay products increased. Chief Executive Officer Indra Nooyi created a council in September to better coordinate sales of snacks and beverages after the company reduced its full-year profit forecast.

“The reason we’re bullish and why we’re having a different view of the market is because we’ve had a lot more faith in the ability of U.S. corporations and the U.S. economy to still navigate through a U.S. expansion, despite what looks like very, very scary headlines,” Thomas Lee, the New York-based chief U.S. equity strategist at JPMorgan Chase & Co. said in an interview on Bloomberg Television “In the Loop” with Betty Liu.

Liz Claiborne Inc. (LIZ) surged 27 percent to $6.49 after agreeing to sell its namesake and Monet brands to J.C. Penney Co. and its Kensie line to Bluestar Alliance as the company works to reduce debt. The transactions and the completion of the sale of Dana Buchman brand to Kohl’s Corp. (KSS) are worth a total of $328 million in cash, New York-based Liz Claiborne said today.

Alcoa Slumps

Alcoa slumped 3.2 percent to $9.97. The first company in the Dow to report earnings this quarter posted profit that trailed estimates, saying European customers “dramatically” cut orders on economic uncertainty. Alcoa is grappling with rising production costs while the price of aluminum on the London Metal Exchange has fallen in the past two months.

Earnings per share for the S&P 500, excluding financial companies, rose 14 percent in the third quarter, according to analysts’ estimates compiled by Bloomberg. Still, it’s the smallest gain since the end of 2009, the data showed.

Companies in the S&P 500 will earn $96.64 a share in 2011, UBS AG said in a note, raising its prediction from a previous $95 because the U.S. economy is “somewhat stronger than we assumed.”

“We remain cautious,” UBS’s Thomas Doerflinger, a New York-based senior strategist, wrote. The increase in the 2011 estimate came because he raised second-half earnings predictions, saying technology profits in the third quarter “should be reasonably good,” consumer demand is “weak but not terrible” and financial companies’ credit costs should continue to decline.

Doerflinger said the tone of earnings will be “much weaker” than in the past six quarters, with “potential negative wild cards” of weaker commodity prices and mortgage- related losses at some banks over the next two years.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net