U.S. Stocks Post Steepest Gain Since November as Banks Rebound

U.S. stocks ended a four-week losing streak with the steepest rally since November after the nation’s three largest banks said they’ve become profitable and General Electric Co. said losing the top credit rating at Standard & Poor’s won’t hurt business.

The banks, Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., surged 49 percent or more, propelling a measure of S&P 500 financial stocks to a record gain. GE added 36 percent as S&P raised its outlook to “stable.” All 27 companies in the S&P 500 Retailing Index climbed following a government report showing U.S. chain-store sales beat estimates last month. Schering-Plough Corp. jumped 37 percent after Merck & Co. agreed to buy the drugmaker for $41.1 billion.

“It’s been a terrific week,” said Fritz Meyer, the Denver- based senior market strategist for Invesco Aim, which oversees $357 billion. “It would make sense for the market to bottom here and start to rebound as the economic recovery unfolds.”

The S&P 500 rallied 11 percent to 756.55, recovering from the 12-year low of 676.53 reached on March 9. The Dow Jones Industrial Average rose 597.04 points, or 9 percent, to 7,223.98. The Nasdaq Composite Index climbed 11 percent to 1,431.50. The Russell 2000 Index of small companies increased 12 percent to 393.09.

The S&P 500 has risen in only two of 10 weeks this year as falling shares of banks raised concern the government would be forced to nationalize some lenders. The U.S. stock benchmark has declined 16 percent in 2009.

Recovery in 2009

Financial stocks in the index surged 34 percent this week after the chief executive officers of Citigroup, Bank of America and JPMorgan said they made money in January and February, recovering from the worst crisis since the Great Depression.

Citigroup jumped 73 percent to $1.78. Bank of America rose 83 percent to $5.76. Both have received $45 billion in federal money to stem mortgage losses. JPMorgan, which took $25 billion from the government, added 49 percent to $23.75.

Citigroup is still down 73 percent in 2009, while Bank of America has lost 59 percent and JPMorgan has fallen 25 percent.

The S&P 500’s last rally was a 24 percent rise between Nov. 20 and Jan. 6 on optimism President Barack Obama’s economic stimulus package would end the recession. The index then tumbled 28 percent through March 9 as the economic slump intensified and companies from GE to JPMorgan cut dividends.

“This is a bear market rally,” David Darst, chief investment strategist at Morgan Stanley Global Wealth Management in New York, said in a Bloomberg Television interview. “Fundamentals are rough right now.”

Industrial Production

U.S. industrial production probably fell in February for the sixth time in seven months as cutbacks at automakers and collapsing exports rippled across the economy, economists said before a report to be released next week. Construction began on the fewest houses on record, a March 17 report from the Commerce Department may show.

Retailers in the S&P 500 climbed 15 percent as a group, the most since November. The Commerce Department said chain-store sales decreased 0.1 percent in February, topping the median economist estimate for a 0.5 percent drop. The government boosted the January figure to a 1.8 percent increase.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, lost 14 percent to 42.36, its steepest weekly drop of the year. It measures the cost of using options as insurance against declines in the S&P 500.

No ‘Significant’ Harm

GE increased 36 percent to $9.62 after saying it “does not anticipate any significant operational or funding impacts” from the rating cut to AA+ from AAA, which it had held since 1956. S&P credit analysts cited the prospect of weaker earnings or a “modest net loss” at the company’s finance unit as the reason for the downgrade.

Berkshire Hathaway Inc. Class A shares advanced 14 percent to $83,550 even after being stripped of its top-level debt grade by Fitch Ratings because of risks stemming from derivatives holdings and Chairman Warren Buffett’s age. The billionaire turns 79 in August.

Schering-Plough increased 37 percent to $24.21. The deal would make Merck the second-biggest U.S. drugmaker and give it full rights to cholesterol pills Zetia and Vytorin and experimental treatments for blood clots, asthma and schizophrenia.

Merck added 19 percent to $27.07. Sanford C. Bernstein & Co. analysts advised buying shares of the company.

‘Significant Benefit’

Pfizer Inc. jumped 14 percent, the most since 1999, to $14.54. The world’s biggest drugmaker said its cancer drug Sutent showed a “significant benefit” in patients with a form of pancreatic tumor.

The S&P 500 Health Care Index posted the steepest advance since 2002, climbing 9.5 percent.

The gains in U.S. stocks occurred even as confidence among American consumers held close to a 28-year low, reflecting mounting job losses amid a deepening recession. The Reuters/University of Michigan preliminary index of consumer sentiment climbed to a higher-than-estimated 56.6 from 56.3 in February. The gauge reached a 28-year low of 55.3 in November.