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U.S. Stocks Rise on Obama Plan; Citigroup, Bank of America Gain
By Elizabeth Stanton
Jan. 21 (Bloomberg) -- U.S. stocks rebounded from a two- month low, led by the biggest gain in financial shares in a month, on speculation a plan from President Barack Obama will shore up banks.
Citigroup Inc. and Bank of America Corp, the biggest U.S. banks by assets, jumped more than 12 percent. International Business Machines Corp. climbed 10 percent after its 2009 profit forecast topped analysts’ estimates. The S&P 500 Financials Index increased 5.3 percent, rebounding from its lowest level since March 1995.
“As volatile and treacherous as the waters are, the storm will pass,” said Michael Williams, who helps oversee more than $2 billion as chief executive officer of Genesis Asset Management in New York. “In order to get the deals, you have to be willing to step into the waters when it’s awfully ugly.”
The S&P 500 rose 1.6 percent to 817.73 at 2:09 p.m. in New York. The Dow Jones Industrial Average added 97.25 points, or 1.2 percent, to 8,046.34. The Russell 2000 Index climbed 1.5 percent.
The S&P 500 was off to its worst start to a year as of yesterday, shattering the biggest rally since World War II, as analysts cut earnings estimates by a record 83 percentage points and companies signal worse to come. U.S. stocks sank yesterday, sending the Dow average to its worst Inauguration Day decline, as speculation banks must raise more capital pushed financial shares to an almost 14-year low.
Europe’s Dow Jones Stoxx 600 Index dropped 0.6 percent, while the MSCI Asia Pacific Index slid 0.7 percent.
Obama Team Meets
Treasuries fell on concern debt sales will increase as Obama called on Americans to rebuild the economy. The new president’s economics team is pushing to complete a bank-rescue plan that can be twinned with the $825 billion stimulus package being negotiated with Congress to alleviate the deepening financial crisis.
While full details of the rescue haven’t been settled yet, people familiar with the deliberations said the package is likely to include a $50 billion-plus program to stem foreclosures, fresh injections of capital into banks and steps to deal with toxic assets clogging lenders’ balance sheets.
Timothy Geithner, Obama’s nominee for Treasury Secretary, told Congress President Barack Obama plans within the next few weeks to propose a “comprehensive plan” for responding to the economic and financial crises.
“Our guess is by the year-end, that the reflation going on with the monetary policy, the fiscal policy, the decline in the price of oil, all that reflation will overcome the deflationary forces, and we’ll have a somewhat higher market,” Robert Doll, who oversees about $300 billion as chief investment officer for global equities at BlackRock Inc., told Bloomberg Television.
Banks Rally
Citigroup, the U.S. bank that received a government-backed capital injection of $20 billion in November, surged 15 percent to $3.22 after closing at a 17-year low yesterday. The shares rose even as Citigroup lowered its quarterly dividend to a penny a share from 16 cents a share to comply with the terms of the bailout.
Bank of America, the biggest U.S. lender by assets, rose 63 cents to $5.73, rebounding from its lowest close in 18 years. JPMorgan Chase & Co. advanced 14 percent to $20.55.
“There is going to be a banking system that survives,” said Matthew Kaufler, portfolio manager at Federated Clover Investment Advisors in Rochester, New York. “There are institutions that are not diseased, that while they might require additional capital to get through this period, are going to survive and prosper again.” Federated Clover manages $2.1 billion.
IBM Jumps
IBM added $8.18 to $90.16. The biggest computer-services provider posted fourth-quarter profit of $4.43 billion, or $3.28 a share, surpassing analysts’ estimates, as the top provider of computer services coped with a worldwide technology slump by cutting overhead costs and adding products.
General Electric Co. slid as much as 8.1 percent, before paring losses and trading down 1.4 percent at $12.75. The world’s biggest maker of power-plant turbines was given a “short-term sell” recommendation by UBS AG, which said reserves are too low and 2009 credit losses will exceed forecast.
United Technologies Corp., the maker of Pratt & Whitney jet engines and Otis elevators, fell 1.6 percent to $48.56 after saying conditions in the first half of 2009 will be worst than anticipated.
Northern Trust, PNC
Northern Trust Corp. rose 22 percent to $53.78 for the biggest gain in the S&P 500. The Chicago-based custody bank’s fourth-quarter operating earnings rose 48 percent on record foreign-exchange trading income.
PNC Financial Services Group Inc. added 23 percent to $26.98. The fifth-largest U.S. bank by deposits said it won’t sell new stock despite a fourth-quarter loss resulting from its purchase of National City Corp.
U.S. Bancorp tumbled 14 percent to $13.13, limiting gains in financials. The bank that acquired failed lenders Downey Financial Corp. and PFF Bancorp Inc. said fourth-quarter profit plunged 65 percent on impairments from investments and setting aside more money against bad debt.
Wal-Mart Stores Inc. declined 4 percent to $48.55 and was the biggest drag on the Dow average. The world’s largest retailer and the fifth-best performing stock in the S&P 500 last year was cut to “neutral” from “outperform” at Credit Suisse Group AG, which said “waning inflation and slowing square footage growth should pressure sales growth.”
Allegheny Technologies Inc. fell 11 percent to $21.56 for the second-biggest drop in the S&P 500 after U.S. Bancorp. The specialty-metals producer that supplies titanium to Boeing Co. said fourth-quarter profit declined 26 percent because of an “unprecedented” fall in demand in several key markets.
Coach Inc., the largest U.S. maker of luxury leather handbags, slid 9.7 percent to $14.33. Fiscal second-quarter profit declined 14 percent as the company didn’t match rivals in cutting prices to lure customers.
To contact the reporter on this story: Elizabeth Stanton in New York at
estanton@bloomberg.net Last Updated: January 21, 2009 14:11 EST
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