U.S. Stocks Advance After Unexpected Gain in Housing Starts

U.S. stocks advanced, recouping yesterday’s losses, on an unexpected rebound in homebuilding and speculation that the Federal Reserve will outline more plans to bolster the economy tomorrow.

Centex Corp. helped lead a rally in construction companies and Home Depot Inc. jumped 6 percent as housing starts unexpectedly climbed 22 percent in February, the biggest jump since 1990. Citigroup Inc. and JPMorgan Chase & Co. rose more than 3 percent. Producers of raw materials posted the only decline among 10 Standard & Poor’s 500 Index industries after Alcoa Inc. cut its dividend and Nucor Corp., the nation’s biggest steelmaker by market value, said it will report a first- quarter loss because of dwindling demand.

The S&P 500 rose 1.5 percent to 765.36 at 2:24 p.m. in New York. The Dow Jones Industrial Average increased 77.66 points, or 1.1 percent, to 7,294.63. The Russell 2000 Index added 2 percent.

“The markets are in a show-me phase,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.5 billion in Elmira, New York. “Housing is showing signs of stabilization, which should help firm up the equity markets.”

The S&P 500 yesterday halted a four-day rally that had propelled the index up almost 12-perent from its 12-year low on March 9. The gains were triggered by optimism that the worst of the financial crisis was over after Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. said they were profitable in the first two months of the year.

15 Percent Slump

The S&P 500 has declined 15 percent in 2009, rising in only two of 10 weeks this year, as mounting losses at banks raised concern the government would be forced to nationalize some lenders. The index lost 38 percent in 2008, its worst year since the Great Depression.

Yesterday’s declines came as a rally in financial companies was snuffed out by concern over rising credit-card defaults, while SanDisk Corp. led a slump in technology shares.

Today’s advance came amid speculation that Fed policy makers will consider increasing the pace and size of a $600 billion program to purchase mortgage securities and other assets. That would signal a more aggressive stance from Fed Chairman Ben Bernanke after the economy and job market deteriorated further since the Federal Open Market Committee last met, analysts and investors say.

The FOMC meets today and tomorrow and is expected to release a statement tomorrow afternoon.

‘Optimism Building’

“Bernanke has been cheerleading the economy so there could be some optimism building around his comments tomorrow,” said Eric Bjorgen, a portfolio manager at Leuthold Group, which oversees $3.2 billion.

Centex gained 50 cents, or 7.3 percent, to $7.39 today and an S&P gauge of 13 homebuilders added 4.6 percent. Work began on 583,000 homes at an annual rate in February, topping the 450,000 projected by economists in a Bloomberg survey, the Commerce Department said. The jump was influenced by warmer weather and an 82 percent surge in starts on condominiums, apartments and townhouses.

Home Depot advanced the most in the Dow average, adding 6 percent to $21.35. The largest home-improvement retailer was raised to “buy” from “hold” at Jefferies & Co., which cited market share gains.

Citigroup Inc. had the Dow’s second-biggest gain, climbing 5.2 percent to $2.45, extending its rebound from a March 5 closing low to about 140 percent. The stock is still down 63 percent this year.

Material Producers Slump

Alcoa and Nucor Corp. helped drive down raw-material producers in the S&P 500. Alcoa slid 50 cents to $5.62. The company said it will slash its dividend to 3 cents a share from 17 cents and cut costs to conserve cash.

Nucor fell the most in three months after forecasting a first-quarter loss of as much as 65 cents a share because of lower-than-expected demand. Nucor lost $4.43 to $32.52.

Genworth Financial Inc. and Hartford Financial Services Group Inc. advanced after state insurance regulators said a major insurer’s failure will not jeopardize the entire industry.

“Even a major insurer failure, while traumatic in terms of job displacement and, perhaps, for shareholders, will generally not impose systemic risk,” Michael McRaith, director of insurance for Illinois, said in prepared testimony to the Senate Banking Committee on behalf of the National Association of Insurance Commissioners.

Insurers Advance

Genworth climbed 12 cents, or 8.3 percent, to $1.56 and Harford advanced 32 cents, or 6.9 percent, to $6.87.

Morgan Stanley fell 1 percent to $22.78 as the stock was downgraded to “underperform” by Bank of America Corp. analyst Guy Moszkowski, who cited concern over the bank’s commercial real estate holdings.

Financial shares in the S&P 500 added 2.1 percent. The group dropped as much as 2.2 percent in the first half hour after analyst Meredith Whitney told CNBC that banks’ profit forecasts “may come back to haunt them” because they probably don’t include writedowns on bad assets and provisions for loan losses.

Banking Outlook

Bank of America Chief Executive Officer Kenneth Lewis said on March 13 that his company was profitable in January and February, joining JPMorgan and Citigroup in suggesting the nation’s three biggest banks are recovering from the credit crisis.

The announcements last week helped spark a record rally in financial shares. The S&P 500 Financials Index surged 34 percent last week, the steepest advance since S&P created the gauge of banks, insurers and investment companies in 1989.

Cisco Systems Inc. gained 1.9 percent to $15.74 today. Goldman Sachs Group Inc. added the world’s largest maker of networking equipment to its “conviction buy” list, citing the introduction of its so-called blade platform.