U.S. Stocks Rise on Bailout, Rate Speculation; Wachovia Jumps

Oct. 3 (Bloomberg) — U.S. stocks rose for the first time in three days as a bigger-than-forecast decrease in jobs spurred expectations Congress will pass a bank-bailout plan and the Federal Reserve will cut interest rates to bolster the economy.

Bank of America Corp., General Motors Corp. and United Technologies Corp. climbed more than 3 percent as futures traders bet the Fed will lower its benchmark rate by as much as 0.75 percentage point at its next meeting. Wachovia Corp. rallied 77 percent after Wells Fargo & Co., the biggest West Coast bank, agreed to buy the lender for about $15.1 billion. National City Corp. climbed 27 percent and Sovereign Bancorp Inc. added 13 percent.

“This economic report is putting a gun to Congress’s head that they’ve got to do something,” said Peter Jankovskis, the Lisle, Illinois-based co-chief investment officer at Oakbrook Investments LLC, which manages $1.4 billion. “There’s no wiggle room for Congress, and that makes it very likely the bailout package will be passed soon.”

The Standard & Poor’s 500 Index gained 21.18, or 1.9 percent, to 1,135.46 at 10:04 a.m. in New York. The Dow Jones Industrial Average added 129.82, or 1.2 percent, to 10,612.67. The Nasdaq Composite Index rose 39.31, or 2 percent, to 2,016.03. Eleven stocks gained for every two that fell on the New York Stock Exchange.

The S&P 500, which has fallen 6.8 percent over the past five days, pared losses at the end of its worst week since 2002. The benchmark index for U.S. stocks tumbled 4 percent yesterday as reports on jobless claims and factory orders reignited concern the economy is sinking into a recession.

Wachovia Rallies

Wachovia rallied $3.02 to $6.93 on the New York Stock Exchange. The Wells Fargo offer values the Charlotte, North Carolina-based bank at $7 a share, the companies said in a joint statement today.

Citigroup Inc., which had agreed four days ago to buy Wachovia’s banking operations, declined $3.15, or 14 percent, to $19.35.

National City, Ohio’s biggest bank and the subject of takeover speculation earlier this week, gained 27 percent to $4. Sovereign, the second-largest U.S. savings and loan, increased 13 percent to $5.95.

Fed Funds futures trading on the Chicago Board of Trade show a 92 percent chance the Fed will reduce its target rate for overnight bank loans by a half-percentage point to 1.5 percent at its Oct. 29 meeting and 8 percent odds of a 0.75 percentage- point cut.

`Part of the Solution’

“We wouldn’t be surprised to see the Fed cut rates 50 points even before the next scheduled meeting,” James Shugg, a senior economist at Westpac Banking Corp. in London, said in an interview on Bloomberg Television. “It actually helps boost, to some extent, bank profitability. An interest-rate cut is an important part of the solution to the current serious problems confronting the U.S. economy.”

Payrolls fell by 159,000 in September, the biggest decrease in five years, the Labor Department said. The jobless rate, the last one reported before the presidential election, remained at 6.1 percent. Hours worked reached the lowest level since records began in 1964.

Railroad Rally

CSX Corp. jumped $2.38, or 5 percent, to $49.59. JPMorgan Chase & Co. upgraded shares of the Jacksonville, Florida-based railroad to “overweight” from “neutral,” saying an 11 percent tumble yesterday left the stock at a “compelling valuation” given its “strong visibility” for earnings growth next year.

Burlington Northern Santa Fe Corp., also raised to “overweight” from “neutral” by JPMorgan, climbed $1.71, or 2.1 percent, to $84.71. The Fort Worth, Texas-based railroad whose largest investor is billionaire Warren Buffett dropped 7.3 percent yesterday on concern falling commodities and factory orders may foreshadow a decline in freight volume.

General Growth Properties Inc. gained $4.10, or 54 percent, to $11.69. The Chicago-based mall owner whose shares slumped 48 percent yesterday fired its chief financial officer and suspended dividend payments to weather the seizure in financial markets.

Equities retreated from Sao Paulo to London to Tokyo this week, sending the MSCI All-Country World Index to an 8.9 percent decline, as an increase in bank failures exacerbated the credit freeze that pushed up borrowing costs for companies and consumers around the globe.

The S&P 500, down 23 percent this year, still trades for 21.6 times profit from the past 12 months. Only four of 48 developed and emerging nations tracked by MSCI Inc. — Switzerland, Jordan, Colombia and Morocco — have a higher price-to-earnings ratio, according to data compiled by Bloomberg yesterday.

Europe’s Dow Jones Stoxx 600 Index trades at 10.8 times earnings, near the lowest since at least 2002.

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