U.S. Stocks Snap 3-Day Slide; Dow Has Biggest Rally This Year

U.S. stocks snapped a three-day decline and the Dow Jones Industrial Average had its biggest rally this year as takeover speculation boosted mining shares and General Motors Corp. jumped after an analyst upgrade.

Alcoa Inc. gained the most in the Dow average on a report two companies are preparing bids for the world's largest aluminum maker. GM, the biggest automaker, climbed to an 18-month high after Merrill Lynch & Co. said a $17 billion pension surplus may cover some costs of a new labor contract.

Takeovers may help offset an expected slowdown in profit growth among companies in the Standard & Poor's 500 Index, investors said. Since reaching a six-year high on Feb. 7, the S&P 500 has dropped as much as 1.2 percent.

``We are in a period where corporate earnings growth rates are starting to moderate, companies are flush with cash, and if you can't grow organically it's very easy to grow through acquisitions,'' said David Rolfe, who helps manage $650 million at Wedgewood Partners Inc. in St. Louis. ``There's a ton of capital out there waiting just to do that.''

The Dow industrials rose 102.30, or 0.8 percent, to 12,654.85, the best performance since Dec. 27. The S&P 500 added 10.89, or 0.8 percent, to 1444.26, with all 10 of its industry groups posting gains. The Nasdaq Composite Index advanced 9.50, or 0.4 percent, to 2459.88.

A $7 billion share buyback from 3M Co. also contributed to the market's advance.

Stocks dropped yesterday, extending their worst weekly decline since December, as lower oil prices and rising homeowner defaults contributed to a selloff in energy companies, builders and mortgage lenders.

Takeovers

Today, Alcoa climbed $2.10, or 6.4 percent, to $35. BHP Billiton Ltd., the world's biggest mining company, and Rio Tinto Group are independently considering plans for a $40 billion takeover of Alcoa, The Times of London said, citing unidentified people. Alcoa and Rio Tinto declined to comment. BHP denied the report.

Alcan Inc., the second-largest aluminum producer, rose $2.56 to $54.75. Century Aluminum Co. jumped $2.26 to $47.92.

Among other takeover targets, Caremark Rx Inc. gained $1.97 to $62.88. CVS Corp. raised its offer for the second-biggest prescription-drug benefit manager to $25.7 billion, or $60.26 a share, challenging Express Scripts Inc.'s competing $61.09 bid.

CVS, the second-largest drugstore chain, slipped 40 cents to $32.09, while Express Scripts gained 68 cents to $75.41.

Applebee's International Inc. jumped $2.09 to $26.32. The restaurant operator said it's exploring a sale after its third- biggest shareholder criticized management for failing to boost revenue and cut costs.

Last year, a record amount of takeovers and stock buybacks helped drive the S&P 500 to its best annual performance since 2003.

Bernanke

More than four stocks advanced for every one that fell on the New York Stock Exchange today. Some 1.45 billion shares changed hands on the Big Board, 3.8 percent less than the three- month average.

Federal Reserve Chairman Ben S. Bernanke may give the market some clues on the interest-rate outlook when he gives his semi- annual testimony to a Senate Banking Committee tomorrow, and the House Financial Services Committee the following day.

Investors will focus on two issues, according to Paul Nolte, director of investments at Hinsdale Associates Inc. in Hinsdale, Illinois: Bernanke's commentary on inflation and his expectations for economic growth.

``Will he be more concerned about inflation or more concerned about housing impacting the rest of the economy?'' said Nolte. It's likely ``he's still wearing the inflation-fighting cape.''

GM, Ford

GM climbed 88 cents to $36.59, its highest since August 2005. Merrill upgraded the stock to ``buy'' from ``sell'' on optimism that its pension surplus boosted prospects for a favorable labor agreement this year.

Deutsche Bank AG last week raised its rating on GM, saying the company would win health-care concessions from the United Auto Workers union.

Rival Ford Motor Co. slid 20 cents, or 2.3 percent, to $8.45 for the sharpest decline in the S&P 500. The stock is a bigger risk after rising 30 percent from a December low, said Merrill, which cut Ford to ``sell'' from ``neutral.''

3M, the maker of products from Post-it Notes to road signs, said it will repurchase the shares through February 2009 in the biggest buyback in its history. The company also raised its quarterly dividend 4.3 percent to 48 cents a share. 3M shares added $1.84 to $76.43.

Commodity Producers

Producers of raw materials and energy companies had the two biggest gains among 10 industry groups in the S&P 500 as oil and metals prices climbed.

Crude futures rose 2.2 percent to $59.06 a barrel in New York after the International Energy Agency increased its forecast for global oil consumption this year.

Exxon Mobil Corp., the world's biggest oil company, gained 85 cents to $75.45. ConocoPhillips, the third-largest U.S. oil company, added $1.24 to $67.27.

Freeport-McMoRan Copper & Gold Inc., owner of the world's second-largest copper mine, increased $2.94 to $56.19. Newmont Mining Corp., a copper and zinc miner, gained 57 cents to $45.91.

Copper for delivery in three months surged 5.1 percent to $5,749 a metric ton in London on signs of rising demand from China. The contract had its biggest gain since July 6.

The S&P 500 gauge of materials shares, which includes Alcoa, climbed 2 percent to a record.

In other markets, Treasuries were little changed before Bernanke's congressional testimony and the dollar declined against the yen.

Earnings Growth Streak

Priceline.com Inc. surged $4.87 to $50.80 after the online travel agency forecast more 2007 profit and reported higher fourth-quarter earnings than analysts anticipated.

Companies posted a 10 percent gain in fourth-quarter profit through yesterday, with 75 percent of the S&P 500 members having reported results, according to data from Bloomberg. Earnings this quarter will probably rise 4.1 percent, according to analysts' estimates. Average profits have climbed by at least 10 percent since the third quarter of 2002.

KB Home, the fifth-largest U.S. homebuilder, gained $1.49 to $53.43. The company posted a fourth-quarter net loss of 64 cents a share, which beat the $1.01 loss estimated by analysts in a Bloomberg survey. KB Home's advance helped an S&P measure of 16 homebuilders snap a six-day losing streak.

Nasdaq Tumbles

Nasdaq Stock Market Inc. plunged $4, or 11 percent, to $31.10 for its steepest decline since August 2003. The second- largest U.S. equity market said earnings growth will slow this year after fourth-quarter profit rose less than the most optimistic analysts' estimates.

S&P 500 shares, called Spiders, gained $1.21 to $144.66. Nasdaq-100 Index tracking shares, known by their QQQQ symbol, advanced 16 cents to $43.86.

S&P 500 futures expiring in March rose 11.50 to 1449.40 on the Chicago Mercantile Exchange. Nasdaq-100 futures increased 10.50 to 1796.

The Russell 2000 Index, a benchmark for companies with a median market value of $678 million, gained 0.8 percent to 812.53. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, added 0.8 percent to 14,557.67. Based on its advance, the value of stocks rose by $137.5 billion.

source:www.bloomberg.com