U.S. Stocks Rise on Rate Speculation; Exxon, Alcoa Shares Rally

Nov. 7 (Bloomberg) -- U.S. stocks rose for the first time in three days as investors speculated the Federal Reserve will lower interest rates after unemployment surged, General Motors Corp. warned it is running out of cash and pending home sales dropped.

Exxon Mobil Corp., the biggest oil company, climbed 6.3 percent and Alcoa Inc., the nation's largest aluminum producer, rallied 9.1 percent as traders bet the Fed will cut the benchmark rate to 0.5 percent at its meeting on Dec. 16. GM, the biggest automaker, lost 9.2 percent. U.S. stock indexes briefly pared gains in the final hour of trading after Barack Obama said there is no quick fix for the economy.

``It's definitely to the point where bad news is good news,'' said Robert Morgan, equity strategist for Clermont Wealth Strategies, which oversees $4 billion in Lancaster, Pennsylvania. ``Investors are starting to realize this can't go on forever. From a technical standpoint, stocks have been building a base for several weeks now.''

The Standard & Poor's 500 Index added 26.11 points, or 2.9 percent, to 930.99. The gauge trimmed its weekly decline to 3.9 percent. The Dow Jones Industrial Average climbed 248.02, or 2.9 percent, to 8,943.81 after losing almost 10 percent in the previous two days. The Nasdaq Composite Index increased 2.4 percent to 1,647.4. Three stocks advanced for each that fell on the New York Stock Exchange.

The Dow and S&P 500 recovered after the steepest two-day declines since 1987 wiped out more than half of the market's rebound from a five-year low on Oct. 27. The S&P 500 slumped 37 percent this year on concern almost $700 billion in credit losses and writedowns at financial firms worldwide will push the global economy into recession.

Rising Unemployment

The U.S. jobless rate climbed in October to 6.5 percent, the highest level since 1994, and payrolls dropped by 240,000 workers, signaling the economic slump inherited by Barack Obama will last well into his first year as president.

``I've seen estimates as high as a loss of 300,000, so anywhere between 200,000 and 300,000'' met projections, Peter Boockvar, equity strategist at Miller Tabak & Co in New York, said in a Bloomberg Television interview.

Futures on the Chicago Board of Trade showed an 95 percent chance the Fed will cut its 1 percent target rate for overnight lending between banks in half at its Dec. 16 meeting, compared with 55 percent odds a week ago.

Energy, Utility Gains

Further action is needed to boost the economy because there is no quick fix to restore growth, said Obama, the president elect. Obama said a stimulus package will ``be the first thing I get done'' in office if Congress doesn't act by year end.

``He is speaking practically,'' said Peter Kenny, a managing director for institutional sales at Knight Equity Markets in Jersey City, New Jersey. ``But the buildup around his personality is so great and the expectations are so unreasonable that his biggest issue is going to get people to understand that he not a superhero.''

Energy companies and utilities led the S&P 500's advance, gaining more than 4.8 percent. Oil, which climbed as much as 3.4 percent today, closed 0.4 percent higher at $61.04 a barrel in New York. It had fallen 13 percent in the previous two days.

Exxon added $4.39 to $73.95. Chevron Corp. rallied 4.8 percent to $73.46. Consol Energy Inc., the No. 3 U.S. coal producer, advanced 10 percent for the biggest gain among S&P 500 energy producers.

AES Corp. jumped 28 percent to $8.48, the most in the benchmark stock index. Merrill Lynch & Co. analysts said shares of the U.S. power producer are cheap and raised their rating to ``neutral'' from ``underperform.''

Alcoa, Nvidia Advance

Alcoa added 93 cents to $11.19, helping lead S&P 500 raw- materials producers to 3.6 percent gain.

Nvidia Corp. increased 14 percent to $8.72. The company reported third-quarter profit and revenue that beat analysts' estimates after job cuts and a new contract with Apple Inc. helped cushion the impact of the economic slowdown.

Fluor Corp. climbed 21 percent to $41.03, the steepest advance in at least eight years. The largest publicly traded U.S. engineering firm reported quarterly profit above the average analyst estimate as it won contracts for work on a solar panel plant in Singapore and refinery in Indiana.

GM sank 9.2 percent to $4.36. The largest U.S. automaker, seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital.

Recession Official

The leader of a National Bureau of Economic Research panel that dates economic cycles said there is now no doubt that a recession is under way following today's jobs report. Robert Hall, a Stanford University economist, said the committee is waiting to determine the exact start date of a contraction. The Cambridge, Massachusetts-based bureau is the official arbiter of when U.S. expansions begin and end.

The U.S. economy shrank for the first time since 2001 a year ago and contracted again last quarter after the drop in housing prices froze credit markets globally. President George W. Bush authorized more than $1 trillion in spending to bail out banks.

Fewer Americans signed contracts to buy previously owned homes in September, according to a report from the National Association of Realtors today. The index of signed purchase agreements, or pending home resales, fell 4.6 percent, more than forecast, to 89.2, the industry group said in Washington.

`Priced In'

``A fair amount of the negativity from the economic backdrop has been priced in to the market,'' Michael James, managing director at Wedbush Morgan Securities in Los Angeles, said in a Bloomberg Television interview.

About $6.9 trillion has been erased from U.S. equity markets this year. Banks led the S&P 500's drop, losing 51 percent as a group, followed by commodities producers and computer companies.

Analysts expect full-year profits at companies in the S&P 500 to drop 8.5 percent, according to estimates compiled by Bloomberg.

Wells Fargo & Co. fell 2.5 percent to $29.50 as the biggest bank on the U.S. West Coast raised $11 billion in a stock sale to help pay for its purchase of Wachovia Corp. and signaled banks may be able to tap the public markets for cash.

Yahoo! Inc. lost 13 percent to $12.20 after Microsoft Corp. said it has no interest in buying the search engine operator.

Sprint Nextel Corp. declined 8.4 percent to $3.37. The wireless carrier, whose shares fell 74 percent this year, reported quarterly results below analysts' estimates as customer losses accelerated to the highest level since at least 2005.

The Russell 2000 Index of small U.S. companies rose 2 percent to 505.79. The MSCI World Index of 23 developed markets increased 1.3 percent to 937.47.

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=a2ty08BahcZQ&refer=home