u.s. stocks got a jump-start

.S. Stocks' 4th-Quarter Rally Gets Jumpstart From Fed Language
Dec. 13 (Bloomberg) --

The fourth-quarter rally in U.S. stocks got a jump-start after the Federal Reserve signaled it may stop raising interest rates soon.

Fed policy makers dropped a reference to ``accommodation'' in a statement that followed the 13th straight increase in their target rate. The change suggested that central bankers see rates as high enough to avoid spurring inflation.

``Boy, we've been waiting for this,'' said Larry Peruzzi, senior equity trader at Boston Co. in Boston. ``The feeling is that the market does not need further rate hikes and that the Fed will react accordingly.''

Financial companies including Bank of America Corp., which stand to benefit from stable or lower rates, increased. Makers of consumer products gained after Procter & Gamble Co. the industry's largest company, said this quarter's earnings would exceed an earlier forecast.

The Standard & Poor's 500 Index rallied 7, or 0.6 percent, to 1267.43, within one point of its 2005 high reached last month. Shares of P&G and Pfizer Inc. buoyed the Dow Jones Industrial Average, which added 55.95, or 0.5 percent, to 10,823.72.

Technology stocks held back the Nasdaq Composite Index, which rose 4.05, or 0.2 percent, to 2265. A disappointing 2006 sales forecast from Hewlett-Packard Co., the world's second- largest seller of personal computers, weighed on the group.

This quarter, the S&P 500 is up 3.1 percent, the Dow average is up 2.4 percent and the Nasdaq has climbed 5.3 percent.

Interest Rates

The Fed raised the overnight bank lending rate to 4.25 percent. It still kept a pledge to increase its main rate at a ``measured'' pace, a phrase that has been in every interest-rate statement for 18 months. The central bank has been trying to move its main rate to a so-called neutral level that neither spurs nor restrains economic growth.

``It looks like the Fed is signaling that we're maybe close to an end, which is why the market's rallying,'' said Warren Epstein, head trader at Kabrik Trading LLC in Irvington, New York. ``You have to think about the fact that we're in December, which is typically more of a bullish period than not. They all wanted to get by this Fed meeting.''

The S&P 500 has rallied in December in eight of the last 10 years.

Leeway

Policy makers left themselves leeway to act according to economic conditions while noting that ``core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained,'' according to the statement after their meeting today in Washington.

They cautioned in particular that ``elevated energy prices have the potential to add to inflation pressures.''

A measure of bank stocks rose 1.1 percent and was the top contributor to the S&P 500's gain among 10 industry groups. Lower borrowing costs boost the value of bonds owned by banks, brokers and insurers, and increase demand for mortgages and loans.

Bank of America, the second-largest U.S. bank, added 76 cents to $46.50. Wells Fargo & Co., the No. 5 U.S. bank by assets, rose 85 cents to $63.20.

Homebuilders

A gauge of S&P homebuilders climbed 1.6 percent. D.R. Horton Inc., the largest U.S. builder by market value, added 72 cents to $36.81. Pulte Homes Inc., the second-biggest, was up 98 cents at $41.50.

The Fed's shift in stance today may add to growing investor optimism on U.S. stocks. A survey of money managers by Merrill Lynch & Co. showed they are bullish on the U.S., their least favorite region for the last two years, because of the prospects for economic and profit growth.

Four stocks gained for every three that fell on the New York Stock Exchange. Some 1.78 billion shares changed hands on the Big Board, 6.5 percent more than the three-month average

P&G, the biggest U.S. household goods maker, climbed $1.60 to $58.51. The company said per-share profit in the second quarter ending in December will be 68 cents to 69 cents, up from 66 cents to 69 cents. The company cited stronger than expected sales at its P&G and Gillette businesses.

An index of companies in the S&P 500 that sell so-called consumer staples such as laundry detergent added 1.2 percent.

Pfizer

Pfizer, the world's No. 1 drugmaker, gained for a second day after raising its quarterly dividend 26 percent to 24 cents a share and saying it plans to buy back more stock next year. Pfizer said today that it will pay for a study of 20,000 patients to determine the potential heart risk of its Celebrex painkiller.

The shares surged $1.37, or 6.5 percent, to $22.31 for their biggest gain since Feb. 18.

Hewlett-Packard, the world's No. 2 personal-computer seller, slumped 90 cents to $29.07. The company said 2006 sales will rise as little as 3 percent, disappointing some investors. Revenue will increase to $89.5 billion to $91 billion, Chief Financial Officer Robert Wayman told analysts at a meeting in New York. That compares with the $92.6 billion estimate of Steven Fortuna, an analyst at Prudential in New York.

Sirius Satellite Radio Inc. lost 45 cents to $7.01 after Banc of America analyst Jonathan Jacoby recommended Investors sell shares of the No. 2 U.S. pay-radio provider because the company won't have the ``blowout'' new subscriber additions people expect. Jacoby lowered his rating on the shares to ``sell'' from ``neutral'' in a note to clients.

Energy Costs

Crude oil prices rose 7 cents to $61.37 a barrel in New York, the highest since Nov. 30. They have surged 50 percent from a year ago.

The threat of energy costs lifting inflation may still prompt the central bank to raise its target rate to 4.5 percent, according to Paul McManus, who oversees $8 billion as chief investment strategist at Independence Investment LLC in Boston.

``If we were to see any relief in energy prices, I would be more confident that the Fed won't raise rates any further,'' said McManus.

Burlington Resources Inc. jumped $3.57 to $86.07 after ConocoPhillips offered to buy the natural-gas producer for $35.6 billion. ConocoPhillips, the No. 3 U.S. oil and gas producer, said it will pay $92 a share for Burlington in the biggest purchase for the industry since Chevron Corp. agreed to buy Texaco Inc. in 2001. ConocoPhillips fell $3.05 to $58.20.

`Awash in Cash'

The corporate sector ``is awash in cash, has confidence, is buying back stock, increasing dividends, buying other corporations, hiring,'' said James Awad, who manages $1.5 billion as chairman of Awad & Associates in New York. ``What's wrong with that picture for '06?''

Shares of Wendy's International Inc. rallied $3.63, or 7.1 percent, to $55, their biggest gain in more than four months and the best performance in the S&P 500 today. Billionaire Nelson Peltz bought a 5.5 percent stake in the No. 3 U.S. hamburger chain and urged the company to cut costs and sell off some businesses, including its Baja Fresh brand.

Lehman Brothers Holdings Inc. rose 33 cents to $128.50 as the No. 4 U.S. securities firm by market value reported fiscal fourth-quarter earnings of $2.76 a share. That was ahead of the $2.53 estimate by Merrill Lynch & Co.'s Guy Moszkowski, the No. 1 U.S. brokerage analyst in Institutional Investor magazine's annual survey. Sales fell 4 percent from the third quarter, led by a 14 percent slide in fixed-income trading.

Best Buy

Best Buy Co. dropped $5.90, or 12 percent, to $43.94 for the steepest decline in the S&P 500. The largest U.S. electronics retailer sees earnings for fiscal 2006 ending in February of $2.05 to $2.15 a share, less than the $2.17 expected by analysts in a Thomson. Thomson declined to disclose the parameters for the estimates in its average.

The company also said profit last quarter missed analysts' estimates as expenses jumped by $289 million. Costs may continue to rise faster than earnings growth as it remodels more stores, Best Buy said.

General Motors Corp. fell 75 cents to $22.30. S&P said late yesterday that the carmaker's plan to cut $7 billion in costs next year may not keep GM from bankruptcy unless it revives its U.S. auto sales. S&P yesterday lowered GM's debt rating, already non-investment grade, by two levels.

Lower Forecasts

Shares of Cendant Corp. and Cooper Cos. Inc. retreated on lower profit forecasts.

Cendant, which owns the Avis rental car and Days Inn motel businesses, sank $1.83 to $16.55. The company now expects fourth-quarter per-share profit from continuing operations of 23 cents a share, compared with a previous estimate of 23 cents to 26 cents.

Cooper slid $3.75 to $46. The maker of surgical instruments said fiscal 2006 profit, excluding some items, will be $3.34 to $3.44 a share, compared with its previous forecast of $3.60 to $3.70 a share.

S&P 500 shares, called Spiders, rose 86 cents to 127.31. Nasdaq-100 tracking shares, known by their QQQQ symbol, added 18 cents to $42.05.

S&P 500 futures expiring in March gained 7.90 to 1277.10 on the Chicago Mercantile Exchange. Nasdaq-100 Index futures were up 7 at 1724.

The Russell 2000 Index, a benchmark for companies with a median market value of $569 million, slipped 0.1 percent to 689.03. The Dow Jones Wilshire 5000 Total Market Index, the broadest measure of U.S. shares, gained 55.99, or 0.4 percent, to 12,684.52. Based on the changes in the Wilshire, the value of stocks increased by $70 billion.