U.S. stocks rose, erasing losses from the last two weeks, on speculation lower borrowing costs and resilient consumer spending will sustain profit growth.
Countrywide Financial Corp., the largest U.S. mortgage lender, snapped a four-week slide after lining up $12 billion of financing. McDonald's Corp., the biggest restaurant company, jumped to a record after posting August sales that beat analysts' estimates and boosting its dividend. General Motors Corp. had its best gain in more than a year as investors speculated automakers will win union concessions on health-care costs.
The Federal Reserve said the decline in the U.S. commercial paper market narrowed last week and Kohlberg Kravis Roberts & Co.'s bankers found buyers for loans to finance its takeover of U.K. pharmacist Alliance Boots, bolstering expectations that debt markets will recover from a summer swoon. Stock prices also rallied as traders bet the Fed will cut interest rates at its Sept. 18 policy meeting.
``Consumer demand looks reasonably strong and there's hope that the problems in the commercial paper and debt markets won't be as bad as first expected,'' said Jerome Dodson, president of Parnassus Investments in San Francisco. ``The economy is going to be pretty well off, so right now I'm reasonably bullish.''
The Standard & Poor's 500 Index climbed 2.1 percent to 1,484.25, bouncing back from two straight weekly declines. The Dow Jones Industrial Average rose 2.5 percent to 13,442.52, the biggest weekly gain since April. The Nasdaq Composite Index added 1.4 percent to 2,602.18.
FOMC Meeting
The Fed's Open Market Committee next week will lower the overnight lending rate between banks to 5 percent from 5.25 percent, according to the median forecast of economists surveyed by Bloomberg News. The reduction would be Fed Chairman Ben S. Bernanke's first and may be followed by at least two more before year-end, federal funds futures suggest.
``This Fed meeting is crucial,'' said Walter ``Bucky'' Hellwig, senior vice president at Morgan Asset Management in Birmingham, Alabama. ``The stock market has been responding nicely the past few days in anticipation that the Fed will do what it's supposed to do.''
Countrywide climbed 6.6 percent to $19.42. The lender's ability to find new sources of capital ``should substantially address funding concerns,'' a team of Credit Suisse Group analysts wrote. Countrywide last month borrowed $11.5 billion from bank credit lines to help weather a decline in investor demand for mortgages and reduced access to the commercial paper market, where the company usually borrows money.
Investment Banks Rally
Lehman Brothers Holdings Inc., the biggest underwriter of U.S. mortgage bonds, climbed 12 percent to $59.50 for the largest weekly advance since October 2002. Bear Stearns Cos., the No. 2 underwriter, gained 11 percent to $117.19, the biggest rise since September 2001.
Investors snapped up shares of Lehman, Bear Stearns, Morgan Stanley and Goldman Sachs Group Inc. before the investment banks report quarterly earnings next week.
Bank and brokerage stocks have tumbled this year on concern credit market turmoil will hurt earnings from trading and debt underwriting. The S&P 500 Financials Index has dropped 8.7 percent since December for the worst performance among 10 industry groups.
McDonald's added 13 percent to $55.45. August sales advanced 8.1 percent as customers bought chicken snack wraps and iced coffee in the U.S. and McFlurry desserts in Europe. The company also this week boosted its annual dividend by 50 percent as part of a plan to return as much as $17 billion to investors.
GM Advances
GM, the biggest U.S. automaker, increased 16 percent to $34.22 for the top gain in the S&P 500. Citi Investment Research urged investors to buy the shares on the possibility of an agreement with the United Auto Workers on retiree health care.
The stock may climb to $57 a share if GM gets an accord to set up a union-run fund for the medical coverage, Citi analyst Itay Michaeli said.
The Fed reported short-term debt dropped by $8.2 billion last week, compared with a decline of $31.3 billion a week earlier. Debt maturing in 270 days or less fell to a seasonally adjusted $1.92 trillion, including a $21.6 billion decline in asset-backed commercial paper. Commercial paper outstanding has fallen $306.4 billion in five weeks.
Deutsche Bank AG, JPMorgan Chase & Co. and UniCredit SpA, which last month abandoned selling 6 billion pounds ($12 billion) of mostly senior loans to fund the Boots takeover, probably will finish syndicating 750 million pounds of mezzanine debt that ranks last for repayment, two bankers involved said.
KKR's eight underwriters have been saddled with all of the 9 billion pounds of debt backing Europe's biggest leveraged buyout after investors rejected high-risk, high-yield loans.
Buyout Debt Backlog
Banks have committed about $350 billion for leveraged buyouts in the U.S. and 60 billion euros ($83 billion) in Europe that have yet to syndicate, according to UBS estimates. Underwriters agree to provide the financing to private-equity firms when the acquisitions are announced. If market conditions sour, banks are forced to hold debt they can't sell.
Boots spokesman Richard Constant, Deutsche Bank spokesman Richard Thomson and JPMorgan spokeswoman Colette Campbell, all in London, declined to comment.
Energy companies in the S&P 500 advanced 3 percent as a group for the top gain among 10 industries. Oil reached a record this week and closed above $80 a barrel for the first time on Sept. 13 after Hurricane Humberto briefly shut three refineries in Texas. Crude for October delivery closed at $79.10 a barrel in New York yesterday.
Exxon Mobil Corp., the world's biggest energy company, advanced 3.4 percent to $88.67. Chevron Corp., the second-largest U.S. oil producer, increased 3.4 percent to $90.65.
Treasuries fell as traders reduced holdings of the safest debt and bought riskier assets. The yield on the two-year note rose about 0.14 percentage point to 4.05 percent. Bond yields move inversely to prices.
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