U.S. stocks rallied, sending the Standard & Poor's 500 Index and Dow Jones Industrial Average to records, after retailers reported better-than-expected sales and investors speculated Alcoa Inc. may be bought.
Wal-Mart Stores Inc., the world's largest retailer, posted its biggest gain in a month after same-store sales tripled analysts' predictions. Aluminum producer Alcoa led the Dow's advance as Rio Tinto Group's plan to buy Alcan Inc. spurred expectations of more takeovers in the metals industry.
June sales at Wal-Mart, J.C. Penney Co. and Costco Wholesale Corp. eased concern that the housing slump and surging energy prices would cripple consumer spending, which accounts for more than two-thirds of the U.S. economy.
``We had surprisingly good reports on retail sales and the big daddy of them all, Wal-Mart, beat estimates,'' said John Wilson, co-director of equity strategy at Morgan Keegan & Co., which oversees $20 billion in Memphis, Tennessee. ``Things look very positive.''
The S&P 500 added 22.12, or 1.5 percent, to 1540.88 as of 3:18 p.m. in New York. The Dow average climbed 230.45, or 1.7 percent, to 13,808.32. Both climbed above their records on June 4. The Nasdaq Composite Index increased 39.31, or 1.5 percent, to 2691.10.
All 10 industries groups in the S&P 500 and 28 of 30 companies in the Dow rose.
European stocks climbed for the first time in three days after Rio Tinto's bid. The Stoxx 600 Index rallied 1.2 percent to 397.34.
Retail Sales
Wal-Mart advanced $1.11, or 2.3 percent, to $48.79. June sales at U.S. stores open at least a year grew 2.4 percent, exceeding the company's forecast of 2 percent or less and the 0.8 percent projected by analysts.
Target Corp., the second-biggest U.S. discount retailer, jumped $4.61, or 7 percent, to $70.21. Activist investor William Ackman has accumulated a stake of more than 5 percent, a person with direct knowledge of his purchase said.
Abercrombie & Fitch Co. gained $5.48, or 7.9 percent, to $74.86, the steepest jump in the S&P 500. The clothing retailer for teens and college students said June comparable store sales rose 2 percent from a year earlier. Analysts had estimated sales to fall 2.8 percent.
J.C. Penney climbed $3.48 to $74.64. Its 1.5 percent drop in same-store sales was smaller than the estimate for a 3.1 percent decline.
Costco added 49 cents to $61.21 after the largest U.S. warehouse club said June same-store sales increased 6 percent, exceeding the estimate of 5.9 percent.
``The concern was retail was going to be weak, and although it was not broad-based, there was strength in specific sectors,'' said Peter Zuleba, who helps manage $20 billion at Glenmede Trust Co. in Philadelphia.
Alcoa Speculation
Alcoa rallied $2.65, or 6.3 percent, to $45.08 after Rio Tinto Group, the world's third-largest mining company, agreed to buy Alcan for $101 a share, a 13 percent premium to yesterday's closing price, the London-based company said today in a statement. The offer is 33 percent higher than Alcoa's bid of $76 a share.
BHP Billiton Ltd. will attempt to buy Alcoa ``in a relatively short space of time'' if Alcoa fails to buy Alcan, said John Meyer, a director of mining-equity sales at Numis Securities in London.
Intel, Discover
Intel Corp. added $1.06, or 4.3 percent, to $25.63. Banc of America Securities LLC increased its stock-price forecast and earnings estimates for the world's biggest chipmaker on ``solid'' demand for its processors. Intel is also expected to report second-quarter sales at the high-end of the company's own forecast, according to analyst Sumit Dhanda.
Discover Financial Services rose $1.09 to $26.30. Lehman Brothers initiated coverage of the fourth-biggest U.S. credit- card network with an ``overweight'' rating and a $28 share-price forecast. Analyst Bruce W. Harting wrote the company will return money to shareholders through dividends and buybacks and will be more aggressive as an independent company. Discover was spun off from Morgan Stanley at the beginning of the month.
Progressive Corp. fell 95 cents, or 4.1 percent, to $22.45. The third-largest U.S. car insurer said second-quarter earnings fell 29 percent on higher claim costs and lower prices. The company's profit margin in June was the smallest since Hurricane Katrina struck in 2005.
ImClone Systems Inc. fell $1.70 to $34.20. The company's drug Erbitux failed to slow tumor growth in lung cancer patients, a study found, a setback for ImClone's plan to expand the market for its only product.
Economy Watch
The U.S. trade deficit widened in May as a jump in imported oil costs outpaced record exports. The gap in goods and services trade expanded 2.3 percent to $60 billion from $58.7 billion in April, the Commerce Department said. The deficit matched the median forecast of 71 economists surveyed by Bloomberg News.
Initial jobless claims decreased by 12,000 to 308,000 in the week that ended July 7, the Labor Department said. The four- week moving average, a less volatile measure, dropped to 317,750 from 319,250. Economists in a survey had forecast 315,000.
Almost four stocks gained for every one that fell on the New York Stock Exchange. Some 1.1 billion shares changed hands on the Big Board, 13 percent more than the same time last week.
In other markets, the yield on the benchmark 10-year Treasury note rose almost 3 basis points, or 0.03 percentage point, to 5.12 percent.
source:bloombegr.com
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