U.S. Stocks Rise Amid Bets China May Act to Spur Growth as Alcoa Rallies

By Rita Nazareth - Jan 10, 2012 9:16 PM GMT+0700

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will advance for a second day, after Alcoa Inc. (AA)’s revenue beat analysts’ estimates and investors speculated China may act to spur growth.

Alcoa, the largest U.S. aluminum producer, rallied 3.4 percent. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper miner, jumped 3.7 percent as commodities gained. Regions Financial Corp. and Bank of America Corp. (BAC) added at least 3 percent to pace gains in financial companies. Tiffany (TIF) & Co. fell 9 percent after the luxury jewelry retailer reduced its annual earnings forecast.

S&P 500 futures expiring in March gained 1.1 percent to 1,289 at 9:14 a.m. New York time. Dow Jones Industrial Average (INDU) futures rose 115 points, or 0.9 percent, to 12,452.

“China is likely to ease monetary and fiscal policies in the first half of this year,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “Their economy is growing more slowly than it did. The U.S. economy seems to have momentum. Most companies will surprise on the upside and markets will react positively to that, provided that there’s not any further negative news coming from the rest of the world.”

Global stocks rallied as China’s import growth fell to a two-year low in December, bolstering forecasts for monetary easing. German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde meet in Berlin as pressure grows to complete a Greek debt swap needed to put a rescue plan in place.

Earnings Season

The S&P 500 rose yesterday as investors awaited the start of the fourth-quarter earnings season. S&P 500 earnings have beaten estimates for the past 11 quarters and are forecast to climb above $100 a share in 2012, according to analyst projections compiled by Bloomberg.

Alcoa, the first company in the Dow to report quarterly results, rallied 3.4 percent to $9.75. Sales rose 6 percent to $5.99 billion, beating estimates by 5.1 percent. The company had a loss excluding restructuring costs of 3 cents a share, matching the average projection from 18 estimates compiled by Bloomberg.

Other raw material producers gained as the S&P GSCI index of 24 commodities rose 1.2 percent amid expectations about higher Chinese demand. Freeport rose 3.7 percent to $40.50.

Banks advanced, extending yesterday’s rally. Regions Financial (RF), based in Birmingham, Alabama, added 3.5 percent to $4.69. Bank of America climbed 3 percent to $6.46.

Tiffany Slumps

Tiffany slumped 9 percent to $60.90. The company, which generates almost half of its sales outside of the U.S., is selling fewer $65,000 diamond necklaces as volatile stock markets prompt European consumers to curb spending. Asian shoppers also are restraining purchases of luxury goods as their economies cool.

Rallying stocks have done little to entice professional money managers back to U.S. equities.

A gauge of hedge-fund bullishness measuring the proportion of bets that shares will rise climbed to 44.5 last week from 43.9 at the end of 2011, holding close to the lowest level since 2009, according to International Strategy & Investment Group. Compared with the price of the S&P 500, managers’ so-called net exposure is close to the lowest since June 2008, the ISI data show.

Speculators have been cutting equities since the index peaked in February 2011 at 54.2, concerned Europe’s credit crisis will spread and curb global economic growth. They stayed bearish after October when the S&P 500 began a 17 percent rally that has restored $2 trillion to the value of American equities.

Investors Struggle

Investors have struggled to profit amid record stock market volatility. Hedge funds, largely unregulated investment vehicles that aim to make money whether markets rise or fall, lost 4.9 percent last year as fear that the European sovereign-debt crisis would spread deterred them from buying risky assets including stocks, according to the Bloomberg aggregate hedge- fund index.

“Hedge funds have made massive mistakes,” George Feiger, chief executive officer of Contango Capital Advisors Inc., the San Francisco-based wealth management arm of Zions Bancorporation, said in a telephone interview on Jan. 6. He manages $3.3 billion at Contango and Western National Trust Co. “We are less and less willing to invest with these people because at the point when you need them the most, they’re worth the least.”

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