Sept. 27 (Bloomberg) -- The U.S. stock market rose to the highest since July as investors speculated a drop in new home sales will give the Federal Reserve more reason to lower interest rates.
SLM Corp. posted its biggest rally in five months on expectations the largest U.S. student-loan company will negotiate a new takeover agreement. Exxon Mobil Corp. and Chevron Corp. climbed after crude oil prices increased for a second day. Morgan Stanley and Citigroup Inc. helped lead financial shares to their steepest gain since the Fed cut its benchmark rate on Sept. 18.
The Standard & Poor's 500 Index added 5.96, or 0.4 percent, to 1,531.38. The Dow Jones Industrial Average rose 34.79, or 0.3 percent, to 13,912.94. The Nasdaq Composite Index advanced 10.56, or 0.4 percent, to 2,709.59.
The Dow average climbed to within 0.7 percent of a record after the biggest plunge in new home prices in almost four decades spurred expectations policy makers will continue to lower borrowing costs to stem an economic slowdown. The S&P 500 has rallied an average 15 percent during periods when the Fed was reducing interest rates, according to data going back to 1945 compiled by Bespoke Investment Group LLC.
``The Fed has done the right thing, the market has appreciated it and I think you'll see some more rate drops before the year is out,'' said Harry Clark, who oversees $1.3 billion as chief executive officer of Clark Capital Management in Philadelphia. ``There's a lot of good values out there. The market's going to be very strong through the end of the year.''
Global Shares Advance
Equity indexes in Hong Kong, Singapore, Australia, India and Brazil climbed to records today and European shares rose on expectations that lower U.S. interest rates will stoke demand for exports to the world's largest economy. U.S. Treasuries gained and the dollar traded near a record low against the euro.
The S&P 500 has gained 8.5 percent since the central bank cut its discount rate on Aug. 17 to revive investor confidence in credit markets. On Sept. 18, the Fed lowered the benchmark federal funds rate by half a percentage point and said it will ``act as needed'' to sustain economic growth.
SLM, also know as Sallie Mae, rallied $4.11, or 9.1 percent, to $49.12. Friedman Billings Ramsey & Co. reiterated its ``outperform'' rating on the lender, saying it doesn't expect a buyout group led by J.C. Flowers & Co. to walk away from the takeover even after telling the company yesterday it was no longer willing to pay $60 a share. Sallie Mae led the S&P 500 Financials Index to a 0.8 percent gain.
Citigroup, the largest U.S. bank, added 33 cents to $46.88. Morgan Stanley, the second-largest securities firm, climbed $1.58 to $64.55.
Energy Rally
Energy shares in the S&P 500 advanced 1 percent as a group. Exxon added 60 cents to $92.97. Chevron rose $1 to $93.51.
Crude oil for November delivery gained 3.2 percent to $82.88 a barrel in New York as the dollar's drop boosted the appeal of commodities as alternative investments.
New home purchases declined 8.3 percent to an annual pace of 795,000, the lowest level in more than seven years, the Commerce Department said today in Washington. The median price dropped 7.5 percent from August 2006. The figures suggest home construction will extend its deepest slump since 1991, and consumers will have less home equity to tap for spending.
Fannie Mae Chief Executive Officer Daniel Mudd said in an interview with Bloomberg News today that the housing slump will last beyond next year.
Rate-Cut Bets
Traders increased wagers that the Fed will lower its target rate for overnight loans between banks to 4.25 percent by the end of the year. The odds of a quarter-percentage point rate cut to 4.5 percent at the central bank's Oct. 31 policy meeting are 88 percent, up from 86 percent yesterday, futures contracts show. Futures are also pricing in a 67 percent chance of another quarter-percentage point cut at the Dec. 11 meeting.
``The way the market's been reacting here I think investors are looking for the Fed to cut,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``People are expecting that because these numbers are a little difficult, that the Fed has to come in and cut again.''
Moody's Corp. and McGraw-Hill Cos. rallied for a second day on speculation their credit-rating units won't face penalties for their role in the subprime-mortgage crisis. Officials at the two largest ratings companies appeared before the Senate Banking Committee yesterday to face criticism that they had inflated credit ratings given to subprime securities to win more business.
Moody's, parent of Moody's Investors Service, gained $2.98 to $50.37. McGraw-Hill, owner of Standard & Poor's, rose $2.36 to $52.09.
Returning Cash
Wyeth, Lockheed Martin Corp., Tyco Electronics Ltd. and ConAgra Foods Inc. climbed after saying they plan to return cash to shareholders by raising their dividends and buying back stock.
Wyeth, the drugmaker that had three products postponed by U.S. regulators this year, climbed 9 cents to $44.79. Lockheed, the world's largest defense company, gained $1.07 to $106.79. Tyco Electronics, the biggest maker of electric connectors, added 64 cents to $35.18. ConAgra, the maker of Hunt's ketchup and Orville Redenbacher popcorn, gained 39 cents to $25.82.
Freeport-McMoRan Copper & Gold Inc. added $2.89 to $106.80. The world's second-largest copper producer said it expects to repay a $10 billion loan early next year and may consider returning cash to shareholders through a dividend or stock buyback.
The prospects for more share buybacks and leveraged takeovers improved after Kohlberg Kravis Roberts & Co.'s banks sold $9.4 billion of loans used for the buyout of First Data Corp. in the biggest offering of high-yield debt since corporate funding dried up in July, according to a person with knowledge of the transaction.
`Starting to Calm Down'
``This is just people starting to calm down and not be freaked out in the short term, and the deals are unlocking,'' said Kenneth Fisher, who helps oversee $42 billion as chief executive officer of Fisher Investments in Woodside, California. ``Money is flowing back into finance deals.''
Wal-Mart Stores Inc. climbed 31 cents to $43.61. The biggest retailer added 24 prescriptions to a list of $4 generic drugs to lure more customers into its pharmacies and said it will consider adding a 90-day prescription program.
Micron Technology Inc. increased 61 cents to $11.36. The largest U.S. maker of computer-memory chips is likely to report fiscal fourth-quarter earnings that will exceed analysts' estimates on Oct. 2, Lazard Capital Markets LLC analyst Daniel Amir wrote.
More than two stocks gained for every one that fell on the New York Stock Exchange. Some 1.2 billion shares changed hands on the Big Board, 29 percent less than the three-month daily average.
Bear Stearns
Bear Stearns Cos. retreated $1.85 to $121.15 after financial news network CNBC said billionaire Warren Buffett isn't in talks about acquiring a stake in the fifth-biggest U.S. securities firm. The S&P 500 rallied yesterday after the New York Times reported that Bear Stearns is in discussions with several outside investors including Buffett to sell up to 20 percent of the firm.
Starbucks Corp. declined 72 cents to $26.97. Banc of America Securities lowered its recommendation for shares of the world's largest chain of coffee shops to ``sell'' from ``neutral'' and cut its price estimate 15 percent to $23 on expectations profit growth will slow.
Rite Aid Corp. lost 21 cents to $4.84. The third-biggest U.S. drugstore chain said its second-quarter loss widened on costs from its purchase of the Eckerd and Brooks chains. The company lowered its sales forecast and expects a wider loss for the year.
Jobless Claims, GDP
In other economic data today, initial jobless claims declined by 15,000 to a four-month low of 298,000 in the week that ended Sept. 22, the Labor Department said.
Separately, the Commerce Department said gross domestic product rose at a revised 3.8 percent annual rate from April though June, propelled by a surge in exports. The economy advanced at a 0.6 percent rate in the first quarter.
The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 1.4 percent annual rate in the second quarter and was up 2 percent from the same time in 2006.
The Russell 2000 Index, a benchmark for companies with a median market value of $647 million, gained 0.6 percent to 814.01. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, climbed 0.5 percent to 15,411.42. Based on its advance, the value of stocks increased by $91.7 billion.
In other markets, the yield on the benchmark 10-year Treasury note declined almost 0.05 percentage point to 4.57.
In Europe, the Dow Jones Stoxx 600 Index added 0.8 percent to 377.96. Hong Kong's Hang Seng Index climbed 2.4 percent to 27,065.15, while Brazil's Bovespa Index gained 2.2 percent to 61,052.44.
Bear Stearns Cos. (BSC US)
Chevron Corp. (CVX US)
Citigroup Inc. (C US)
ConAgra Foods Inc. (CAG US)
Exxon Mobil Corp. (XOM US)
Fannie Mae (FNM US)
Freeport-McMoRan Copper & Gold Inc. (FCX US)
Lockheed Martin Corp. (LMT US)
McGraw-Hill Cos. (MHP US)
Micron Technology Inc. (MU US)
Moody's Corp. (MCO US)
Morgan Stanley (MS US)
Rite Aid Corp. (RAD US)
SLM Corp. (SLM US)
Starbucks Corp. (SBUX US)
Tyco Electronics Ltd. (TEL US)
Wal-Mart Stores Inc. (WMT US)
Wyeth (WYE US)
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