U.S. Stocks Rise on Speculation Congress Is Near Bailout Plan

Sept. 26 (Bloomberg) — U.S. stocks climbed as speculation Congress will agree on a $700 billion bank bailout spurred a last-hour rally in financial shares, paring losses in the worst week for the Standard & Poor’s 500 Index since May.

Bank of America Corp. climbed 6.8 percent and JPMorgan Chase & Co., which raised $10 billion in a stock sale today, advanced 11 percent, helping the Dow Jones Industrial Average recover from a 153 point tumble. Research In Motion Ltd. slid the most in eight years, dragging down the Nasdaq Composite Index, after forecasting earnings that trailed analysts’ estimates.

“There’s no question a deal will get worked out and it will ultimately be what the market needs,” said Julie Van Cleave, who manages $4 billion in Milwaukee as head of large-cap growth stocks at DWS Investments, a unit of Deutsche Bank AG.

The S&P 500 increased 3.83 points, or 0.3 percent, to 1,213.01. The Dow jumped 121.07, or 1.1 percent, to 11,143.13. The Nasdaq Composite Index dropped 3.23, or 0.2 percent, to 2,183.34. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, added 0.1 percent to 12,347.03.

The S&P 500 pared its weekly decline to 3.4 percent and the Dow trimmed its loss for the week to 2.2 percent. Stocks climbed for the first time in four days yesterday as speculation grew that Congress would reach agreement on the bank bailout plan, before negotiations stalled last night after the close of trading.

Losses Reversed

Benchmark indexes crept higher from their morning lows as lawmakers expressed optimism that a bailout would be passed. President George W. Bush predicted Congress will resolve any disagreement and Democratic and Republican leaders vowed to keep the House and Senate in session until a deal has been reached.

“I don’t think you can overstate the importance of getting the deal done, and the market really wants to see this happen,” said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, which oversees $273 billion.

Financial companies in the S&P 500 rose 3.2 percent after falling by about the same amount in the morning. Wells Fargo & Co., the biggest bank on the U.S. West Coast, climbed $3.19 to $37.31.

Earlier declines in banks were also spurred by the collapse of Washington Mutual Inc., once the nation’s largest savings and loan. WaMu was seized by regulators last night and forced to sell its branches to JPMorgan, which became the largest U.S. bank by deposits as a result of the deal.

JPMorgan gained the most in the Dow average, advancing $4.78 to $48.24 Bank of America Corp. increased 6.8 percent to $36.70.

`Begin to Stabilize’

The Financial Select Sector SPDR Fund, an exchange traded fund of financial stocks known by its XLF ticker symbol, advanced 2.7 percent to $21.39 after earlier falling as much as 5.3 percent. The ETF is still down 37 percent in the past year.

“Assuming that we do get the resolution, the economy will begin to stabilize” and stocks to recover, Robert Turner, president and CEO of Turner Investment Partners in Berwyn, Pennsylvania, told Bloomberg Television. “The upturn, while maybe not violent, certainly will be better than most anticipate.” Turner manages $26 billion.

WaMu `Unsound’

WaMu, which traded for more than $35 a year ago, plunged $1.53, or 91 percent, to 16 cents.

JPMorgan, which acquired WaMu’s deposits and branches for $1.9 billion and sold 246.9 million shares at $40.50, was upgraded to “neutral” from “underperform” at Merrill Lynch & Co., which said the bank got a “very attractive deal” for WaMu.

Customers of WaMu withdrew $16.7 billion from accounts since Sept. 16, leaving the Seattle-based bank “unsound,” the Office of Thrift Supervision said late yesterday. The takeover gives JPMorgan about $900 billion in deposits and 5,400 bank branches nationwide. WaMu rejected JPMorgan’s March takeover bid at $4 a share.

The S&P 500 has lost as much as 26 percent from its October record after global banks racked up more than $557 billion in credit losses and writedowns stemming from the collapse of the subprime mortgage market.

WaMu is the latest casualty of the crisis that drove Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the emergency takeovers of Merrill Lynch & Co. and Bear Stearns Cos.

`Beyond the Bailout’

Marc Faber, managing director of Marc Faber Ltd. in Hong Kong, told Bloomberg Television the U.S. government’s rescue package may require as much as $5 trillion, seven times the amount Paulson has requested.

“There’s too much focus on the bailout and not enough on what’s beyond the bailout,” said David Baker, chief investment officer at North American Management Corp. in Boston, which oversees $1.4 billion. “The financial pain and malaise is going to result in economic pain and malaise. We’re not optimistic on the market.”

Research In Motion tumbled 27 percent to $70.76. The maker of the BlackBerry e-mail phone missed analysts’ estimates with its second-quarter profit and third-quarter forecast after boosting marketing to introduce phones and ward off Apple Inc.’s iPhone.

Motorola Inc., the biggest U.S.-based mobile-phone maker, lost 3.1 percent to $7.63. Citigroup Inc. cut the ratings for both Research In Motion and Motorola “hold” from `buy,” citing “potential for severe price competition” in the industry.

GDP Trails Estimates

Stock-index futures extended declines before the open of U.S. exchanges after the Commerce Department said the economy grew at a 2.8 percent annual rate in the second quarter, trailing economists’ average forecast of 3.3 percent growth.

The growth rate probably slowed to 1.2 percent in the current quarter and 0.6 percent in the fourth, according to a Bloomberg surveys of economists. Gross domestic product shrunk at a 0.2 percent rate in last year’s fourth quarter, the first negative growth rate since 2001.

Profits at companies in the S&P 500 have fallen from the year-earlier period in each of the past four quarters, and a 5 percent decline is forecast for the third quarter, according to data compiled by Bloomberg. As recently as Aug. 14, analysts expected profit growth in the third quarter. Alcoa Inc., the largest U.S. aluminum producer, is scheduled to report third- quarter results Oct. 7, the first Dow average company to do so.

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