U.S. Stocks Rally as Economic Growth Tops Estimates; Banks Gain
By Lynn Thomasson
Aug. 28 (Bloomberg) -- U.S. stocks climbed for a third day,
led by manufacturers and financial companies, after growth in
exports helped the economy expand faster than estimated in the
second quarter.
American International Group Inc., Caterpillar Inc. and AT&T
Inc. climbed 3 percent each and helped lead gains in nine of ten
industry groups in the Standard & Poor's 500 Index after the
Commerce Department said gross domestic product grew at a 3.3
percent annual rate. Tiffany & Co., the world's second-largest
luxury jewelry retailer, jumped the most in five months on profit
that topped analysts' estimates. Energy shares erased an earlier
advance as oil prices slipped following three days of gains
spurred by concern Tropical Storm Gustav will disrupt production.
``You're getting stronger growth, and that is conceivably
good for equities,'' said Alan Gayle, the Richmond, Virginia-
based senior investment strategist at Ridgeworth Capital
Management, which oversees about $70 billion. ``A number like
this above 3 percent suggests that the economy is not as bad as a
lot of the recent commentary has suggested.''
The S&P 500 gained 14.43 points, or 1.1 percent, to 1,296.09
at 12:33 p.m. in New York. The Dow Jones Industrial Average
increased 187.76, or 1.6 percent, to 11,690.27. The Nasdaq
Composite Index added 24.24 to 2,406.7. More than five stocks
rose for every two that fell on the New York Stock Exchange.
August Advance
The S&P 500 extended its August gain to 2.2 percent as the
GDP report showed businesses are weathering rising inflation and
more than $500 billion in subprime-related bank losses. The
government's initial estimate of economic growth was 1.9 percent
last month and economists in a Bloomberg survey on average
projected 2.7 percent. The data follows an unexpected advance in
durable goods orders that helped boost stocks yesterday.
The Dow average's 2.7 percent gain in August makes it the
third-best-performing stock measure in the world this month, in
dollar terms, and the S&P 500's advance is No. 4., according to
data compiled by Bloomberg.
Three of the biggest gains in the S&P 500 today were MBIA
Inc., Fannie Mae and Freddie Mac, which have all lost at least 22
percent this year.
AIG, the largest U.S. insurer, rose the most in three weeks,
adding $1 to $20.47. Caterpillar, the biggest maker of
bulldozers, increased $2.18 to $71.74. AT&T, the top U.S. phone
company, added $1.07 to $32.27.
Fannie Mae, the biggest U.S. mortgage-finance company,
gained 11 percent to $7.20. Chief Executive Officer Daniel Mudd
replaced three top deputies in an effort to restore investor
confidence after record losses and a 90 percent drop in the
shares.
Financial stocks in the S&P 500 climbed 3.1 percent, capping
their first three-day advance since the middle of July.
Bond Insurers Gain
MBIA, the largest bond insurer, jumped 21 percent for the
top gain in the S&P 500 after agreeing to reinsure municipal
bonds for Financial Guaranty Insurance Co. MBIA led bond insurers
posting record losses after straying from the business of backing
municipal bonds to guaranteeing collateralized debt obligations
that have tumbled in value.
Ambac Financial Group Inc., the bond insurer that lost about
three-fourths of its market value this year, gained 89 cents to
$6.13.
Tiffany had the steepest gain since March, rising 9.8
percent to $43.50. The retailer posted profit that exceeded
analysts' estimates on better-than-expected sales and predicted
higher annual earnings than previously estimated.
Coca-Cola, Brown-Forman
Coca-Cola Co. lost 1.4 percent to $53.06 for the bigger of
only two declines in the 30-stock Dow average. The world's
biggest sodamaker was cut to ``neutral'' from ``outperform'' at
Credit Suisse Group AG, which said rival PepsiCo Inc. is a better
bet because it's further along with a restructuring.
Chevron Corp. posted the other drop in the Dow, losing 37
cents to $86.25, as crude erased an earlier gain of as much as
$1.99 a barrel.
Brown-Forman Corp. fell the most in two months, with the
company's Class B shares losing 4.9 percent to $72.60. The maker
of Jack Daniel's and Southern Comfort whiskey reported a profit
decline and trailed analysts' estimates after writing down the
value of dead agave plants used for making tequila.
The S&P 500 is poised to complete only its third monthly
advance since reaching a record in October. It is still down
almost 12 percent this year.
The S&P 500's August gain has been led by so-called consumer
discretionary companies, which include retailers and hotel and
restaurant chains. The S&P 500 Consumer Discretionary Index
rallied 5.7 percent this month through for the best gain among 10
industries as of the close of trading yesterday.
Energy Concern
The group was helped by an 18 percent retreat in oil prices
from a July record. Limited Brands Inc., owner of the Victoria's
Secret lingerie chain, has led the advance with a 23 percent gain
after posting profit that topped analysts' estimates and
predicting full-year earnings will exceed its earlier
projections.
An index of technology shares in the S&P 500 has had the
second-best return in August with a 3.7 percent gain through
yesterday, led by a 44 percent jump in Advanced Micro Devices
Inc.
Banks, brokerages and insurers have fared the worst in
August, with the S&P 500 Financials Index down 5 percent in
August through yesterday on concern a government bailout of
Fannie Mae and Freddie Mac will wipe out shareholders. The two
largest U.S. mortgage-finance companies fell more than 40 percent
each in August through yesterday.
