U.S. Stocks Advance as Congress Nears Agreement on Bank Bailout

Sept. 25 (Bloomberg) — U.S. stocks advanced, led by banks, as Congress neared an agreement on a $700 billion bailout of financial institutions to help revive lending and credit markets.

Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. added as much as 7.3 percent after Senate Banking Committee Chairman Christopher Dodd said Republicans and Democrats agreed on a “set of principles” for a financial-rescue package. Nike Inc. gained 9.7 percent as the world’s largest maker of athletic shoes said earnings fell less than analysts estimated. Bed Bath & Beyond Inc. rose 4.8 percent after its forecast beat projections.

The Standard & Poor’s 500 Index increased 23.31 points, or 2 percent, to 1,209.18. The Dow Jones Industrial Average added 196.89, or 1.8 percent, to 11,022.06. Almost three stocks rose for each that fell on the New York Stock Exchange, where trading volume was 15 percent less than the three-month daily average.

“Optimism lies in the hope that we’re nearing the end of the credit crisis and that Paulson’s plan will help settle things down and businesses can get back to functioning as normal,” said James Gaul, a Boston-based money manager at Boston Advisors LLC, which oversees $1.8 billion.

Nine of 10 industries in the S&P 500 advanced. The market extended its rally after Dodd, speaking to reporters on Capitol Hill, said the principles will allow Congress to “act expeditiously” and “send a message to the markets.” President George W. Bush said last night that a rescue plan for financial firms is needed to avert a “long and painful” recession.

`They’ve Gotten Through’

The S&P 500 is down 18 percent this year on concern more than $521 billion in credit losses and writedowns at financial firms globally and a slowing economy are curbing profits. Speculation that lawmakers will derail the White House’s plan to rescue banks pushed stocks lower yesterday, erasing 70 percent of the gains the benchmark index for U.S. equities posted on Sept. 18 and 19 after the bailout plan was proposed.

White House and Federal Reserve officials have “really tried to emphasize the gravity of the situation to Congress,” said Joseph Veranth, Brookfield, Wisconsin-based chief investment officer at Dana Investment Advisors, which manages $2.8 billion. “It looks like they’ve gotten through.”

Money-market interest rates around the world soared as financial institutions, whose balance sheets have been ravaged by mortgage-related losses stemming from the first nationwide drop in U.S. home prices since the 1930s, hoarded cash. The three- month London interbank offered rate, or Libor, that banks charge each other for dollar loans jumped today by the most since 1999. The rate is set once a day.

Credit Costs Soar

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 3.26 percentage points. That’s the most since Bloomberg began compiling the data in 1984. It was 1.14 point a month ago.

Bank of America rose 3.9 percent to $34.37. JPMorgan added 7.3 percent to $43.46. Citigroup climbed 2.4 percent to $19.41. Morgan Stanley increased 9.3 percent to $27.10. Goldman Sachs Group Inc. gained 1.9 percent to $135.50.

Nike climbed $5.74 to $65.01. It said orders in China surged and reported first-quarter earnings that beat analysts’ estimates after the Beijing Olympics boosted sales.

Bed Bath & Beyond, the largest U.S. home furnishings retailer, rose $1.48 to $32.19. The company said third-quarter earnings may be as much as 47 cents a share, 2 cents more than the average analyst forecast compiled by Bloomberg.

Telephone companies and utilities helped pace gains as investors favored dividend-paying stocks. Dillard’s Inc. led an advance by 24 of 28 companies in the S&P 500 Retailing Index after two large shareholders asked the board to buy back shares.

Shareholder Request

Dillard’s gained 7 percent to $12.54. Clinton Group Inc. and Barington Capital Group LP asked the department-store chain to repurchase its Class B shares, leaving only one class of stock.

General Electric Co. erased a decline of as much as 4.4 percent, adding 4.4 percent to $25.68. The second-largest U.S. company by market value blamed “unprecedented weakness” in financial markets for a reduction in its profit forecast and suspension of its stock buyback. GE’s finance units accounted for more than half the company’s earnings last year.

GE maintained its dividend, a decision Randy Bateman, chief investment officer at Huntington Bancshares Inc. in Columbus, Ohio, said was important. As interest rates on Treasury securities fall, yields are “becoming so important to individual investors and institutions alike,” he told Bloomberg Television.

The nine phone companies in the S&P 500, seven of which pay dividends, rose 3.6 percent as a group. Utilities added 2.6 percent. All but two of the 31 companies in the index have payouts. The S&P 500 Energy Index gained 2.4 percent as crude oil advanced for the first time in three days.

Economic Reports

Stocks briefly pared their gain after the government said August orders for U.S. durable goods fell more than twice as much as forecast, a sign slower sales and tighter credit conditions prompted companies to cut spending. Equities remained higher even after a separate government report showed sales of new homes fell more than expected last month to a 17-year low.

Washington Mutual Inc., the savings and loan that put itself up for sale last week, fell the most in the S&P 500. Its options may be dwindling as potential bidders shy away from making an offer because it’s not clear how much the proposed U.S. bank rescue package will benefit the Seattle-based lender. WaMu dropped 25 percent to $1.69.

Capital One Financial Corp. fell 5.1 percent to $49.80. The credit-card and banking company raised $686 million by selling shares for 6.6 percent less than yesterday’s closing price.

Pilgrim’s Pride Corp. plunged 40 percent, the most since it began trading in 1986, to $3.84. The biggest U.S. chicken producer expects to report a “significant” fourth-quarter loss that causes it to violate a credit agreement.

Tyson Foods Inc., the second-largest chicken producer, climbed 8.5 percent to $13.17.

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