U.S. Stocks Rise; Countrywide, Fannie Mae, Homebuilders Climb

Dec. 6 -- U.S. stocks climbed for a second day, led by financial companies and builders, on expectations a government plan to limit subprime mortgage defaults will boost bank profits and ease the housing slump.

Countrywide Financial Corp. and Fannie Mae rallied on the Treasury's accord to help some borrowers refinance or freeze interest rates on their adjustable-rate home loans. Lennar Corp. and D.R. Horton Inc., the biggest homebuilders, led a gauge of construction companies to its biggest advance since at least 1994. Apple Inc. gained after Bear Stearns Cos. raised its profit estimate for the maker of iPod music players.

The Standard & Poor's 500 Index added 15.44, or 1 percent, to 1,500.45 at 2:51 p.m. in New York. The Dow Jones Industrial Average climbed 124.05, or 0.9 percent, to 13,569.01. The Nasdaq Composite Index increased 32.2, or 1.2 percent, to 2,698.56. More than four stocks gained for every one that fell on the New York Stock Exchange.

``The whole subprime mess has been the wrench in the gears for the stock market,'' said Harry Clark, who oversees about $1.3 billion as chief executive officer of Clark Capital Management in Philadelphia. ``Anything that looks like it's going to solve or ameliorate that problem is going to be positive for the market.''

Optimism about the accord between the government and lenders helped banks and brokerages rally for a second day even after analysts at Lehman Brothers Holdings Inc. and Merrill Lynch & Co. slashed their earnings estimates for securities firms. Gains in benchmark indexes were limited as retailers including Target Corp. and J.C. Penney Co. reported November sales that trailed analysts' estimates.

Countrywide, Fannie Mae

Countrywide, the largest mortgage lender, increased $1.07 to $11.49. Fannie Mae, the biggest source of financing for U.S. home loans, climbed $1.73 to $37.86. Washington Mutual Inc., the nation's largest savings and loan, gained 33 cents to $18.92. Citigroup, the largest bank, added 13 cents to $33.82.

The 93-member S&P 500 Financials Index climbed 1.3 percent today, extending its advance from a two-year low on Nov. 26 to 10 percent.

The plan to stem defaults comes as more Americans fall behind on their mortgage payments and foreclosures surge. The share of all home loans with payments more than 30 days late rose to the highest since 1986 in the third quarter as borrowers were unable to refinance or sell their homes, the Mortgage Bankers Association said today. New foreclosures hit an all-time high for a second consecutive quarter.

The Treasury agreement offers help in one of three ways. The options are freezing rates for five years or refinancing into either a new private mortgage or a Federal Housing Administration-backed loan.

`Buying Opportunity'

``If we freeze the rates, we're not going to see the kind of pressures people fear in the real-estate market,'' said Michael Williams, who helps oversee about $2.8 billion as managing director of Genesis Partners in New York. ``We think this is another buying opportunity.'' Williams said he's been buying shares of financial companies including Citigroup.

Homebuilders in S&P indexes climbed 9.7 percent as a group today, extending their rally from a five-year low on Nov. 27 to 26 percent. Lennar, the country's biggest homebuilder by sales, added $1.73 to $17.98. D.R. Horton, the second largest, increased $1.11 to $13.74.

Toll Brothers Inc., the largest U.S. builder of luxury homes, reported a fiscal fourth-quarter loss that was smaller than analysts estimated. Toll Brothers gained $1.33 to $22.05.

MBIA Inc. jumped $2.56 to $29.98. The world's largest bond insurer said it may raise capital to protect its AAA credit rating from a possible downgrade by Moody's Investors Service. MBIA has tumbled 59 percent this year after rising mortgage defaults prompted downgrades of securities it guarantees.

Apple $249 Target

Apple gained $3.83 to $189.33. Bear Stearns analysts raised their fiscal 2008 earnings estimate to $5.40 a share from $5.25, citing higher iPod sales and better-than-expected demand for Macintosh computers in Asia. The shares may climb to $249 by the end of next year, analysts led by Andrew Neff said.

American International Group Inc. jumped $2.47, or 4.3 percent, to $60.62 for the top gain in the Dow average. Goldman Sachs Group Inc. reaffirmed its ``buy'' rating on the world's largest insurer and said AIG's increased disclosure of its mortgage-related assets may boost the stock. AIG said yesterday writedowns linked to the U.S. housing market are ``manageable.''

Oil prices rebounded 1.5 percent to $88.77 a barrel in New York, boosting shares of energy producers. Exxon Mobil Corp., the biggest U.S. oil company, gained $1 to $90.92. Chevron Corp., the second largest, added $1.70 to $91. The S&P 500 Energy Index increased 1.9 percent.

Brokerage Downgrades

Analysts at Lehman and Merrill cut their 2008 earnings estimates for Wall Street's biggest securities firms, following reduced projections earlier this week from analysts at JPMorgan Chase & Co., Deutsche Bank AG and Citigroup.

Lehman analyst Roger A. Freeman lowered his profit estimates for Merrill, Bear Stearns, Morgan Stanley and Goldman, citing deteriorating debt markets. Merrill's Guy Moszkowski downgraded Morgan Stanley and Goldman to ``neutral'' from ``buy,'' reducing his earnings estimates for both banks as well as for Bear Stearns, Lehman Brothers, JPMorgan and Citigroup.

Merrill climbed $1.24 to $58.99 on speculation the Treasury's plan will help limit losses on mortgage-related securities. Bear Stearns gained $1.92 to $94.52. JPMorgan added 72 cents to $45.62. Morgan Stanley rose 21 cents to $50.32. Goldman gained 14 cents to $218.40.

Target, the second-biggest U.S. discount chain, dropped $4.73 to $55.40. J.C. Penney, the third-largest U.S. department- store company, lost $2.04 to $43.81. Retailers may feel pressure to slash prices this month and next as consumers struggle with lower home prices and higher energy and food costs.

Jobless Claims

Initial jobless claims decreased to 338,000 last week, the Labor Department said. Economists expected the report to show a decline to 335,000. The four-week moving average, a less volatile measure, rose to 340,250, the highest since October 2005, from 335,500 a week earlier.

The report damped optimism spurred yesterday after ADP Employer Services said private companies added 189,000 workers in November, more than three times the number economists had forecast. The Labor Department may report tomorrow that 80,000 jobs were created in November, down from 166,000 in October, according to a Bloomberg survey of economists.

Central Banks

European Central Bank President Jean-Claude Trichet said today that policy makers aim to ensure that an oil-driven acceleration in consumer prices doesn't trigger an inflation spiral. The ECB left interest rates unchanged at 4 percent, as predicted by all 62 economists surveyed by Bloomberg.

The Bank of England cut its benchmark interest rate for the first time in two years, saying inflation is likely to slow as higher credit costs hurt economic growth. Economists were the most split about today's decision in three years, with 28 of the 62 economists surveyed by Bloomberg forecasting the central bank would lower rates.

The Federal Reserve will release its decision on interest rates Dec. 11. The odds of a quarter-percentage point cut in the Fed's benchmark lending rate at the meeting are 60 percent, Fed funds futures contracts indicate. Futures are pricing in a 40 percent chance of a half-point cut to 4 percent.

Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., said the Federal Reserve should cut the discount rate more than the federal funds rate when it meets next week to encourage more lending by banks. The discount rate is what the Fed charges banks for loans.

The S&P 500 has rebounded more than 6 percent from a three- month low on Nov. 26 that marked the index's first so-called correction in four years. The benchmark is up more than 5 percent on the year, yet still about 5 percent below its all-time closing high of 1,565.15 on Oct. 9.