Bloomberg News

U.S. Stocks Gain as Banks Get New Rules, Technology Shares Rise

June 27, 2011

June 27 (Bloomberg) -- U.S. stocks advanced, breaking a three-day losing streak for the Standard & Poor’s 500 Index, as regulators issued capital rules to safeguard the global financial system and technology companies rallied.

Bank of America Corp., U.S. Bancorp, Huntington Bancshares Inc. rose at least 2.7 percent as lenders climbed. Microsoft Corp. jumped 3.7 percent, helping to lead a gauge of technology shares in the S&P 500 to the biggest gain within 10 groups. Amazon.com Inc. added 4.5 percent after Morgan Stanley added the world’s largest online retailer to its “Best Ideas” list.

The S&P 500 gained 0.9 percent to 1,280.10 at 4 p.m. in New York. The benchmark index for American equities had fallen 2.1 percent over the last three days. The Dow Jones Industrial Average rose 108.98 points, or 0.9 percent, to 12,043.56 today. More than 6 billion shares changed hands on U.S. exchanges at 4:32 p.m., about 4.8 percent more than a week ago.

The requirements for banks “are less onerous than had been feared,” said Scott Tapley, who helps oversee $2.5 billion at 1st Source Investment Advisors Inc. in South Bend, Indiana. “Sooner they’ll be able to return capital to shareholders through dividends and buybacks.”

The S&P 500 had retreated 7 percent from this year’s high at the end of April through June 24 amid concern about Europe’s debt crisis. Financial institutions in the measure slumped 9.9 percent, the second-biggest decline among 10 groups.

Too Big to Fail

Stocks rose today as global regulators said banks deemed too big to fail must hold as much as 2.5 percentage points in additional capital as part of efforts to prevent another financial crisis, the Basel Committee on Banking Supervision said in a statement on June 25. As many as 30 banks may face some level of surcharges, according to a person familiar with the discussions.

“The banks are going to have a greater chance of success reaching those capital thresholds,” said Keith Wirtz, Cincinnati-based chief investment officer for Fifth Third, which oversees $17.4 billion. “They’re going to allow the banks to earn their way into a better balance sheet condition.”

Equity index futures pared gains before the market opened after consumer spending unexpectedly stagnated as employment prospects dimmed and rising inflation caused Americans to cut back, a Commerce Department report showed in Washington today. Purchases rose 0.3 percent in May, the same as in the prior month. Economists had forecast a gain of 0.1 percent, according to the median of 63 estimates compiled by Bloomberg.

‘Little Squiggles’

“I don’t think these little squiggles on the domestic economy are going to make that much difference,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which oversees more than $9 billion. “The focus will continue to be on two things: sovereign debt and Greece. Until this is resolved, I don’t think anybody can feel comfortable anywhere, including the United States.”

Greek lawmakers will vote on a five-year austerity plan this week that must pass before the European Union and the International Monetary Fund will agree to provide further aid. Failure to pass the plan may lead to the euro area’s first sovereign default as Greece needs to cover 6.6 billion euros ($9.4 billion) of maturing bonds in August.

The first session of the three-day debate began in Athens today. The lawmakers will probably vote on June 29. They also need to pass an implementation law, which provides the details of how the five-year plan will be applied, before June 30.

Banks Rally

The KBW Bank Index gained 1.4 percent as 20 of its 24 stocks advanced. U.S. Bancorp added 2.7 percent to $24.57. Huntington Bancshares rallied 3.6 percent to $6.32.

Bank of America rose 3.1 percent to $10.85. The biggest U.S. lender was “massively undervalued” as the stock traded for less than the cash on its balance sheet is worth, said Richard Bove, an analyst with Rochdale Securities LLC.

“Under the bleakest of scenarios Bank of America’s book value will rise in the next three years,” Bove, who is based in Lutz, Florida, wrote today in a note to clients. “At some point the market will adjust to the company’s real values.”

Technology shares in the S&P 500 rose 1.4 percent, the biggest gain within 10 groups.

Microsoft climbed 3.7 percent to $25.20 before a presentation tomorrow by Chief Executive Officer Steve Ballmer, who is expected to introduce Microsoft’s next-generation cloud service for its Office software.

Apple Inc. rose 1.7 percent to $332.04 after Morgan Stanley said the company’s order reductions will ease and production of iPhones and iPads will begin “ramping aggressively” from August through year-end.

Technology Spending

Spending on information technology by companies and governments in the U.S. will grow 5.6 percent in 2011, according to a survey by International Data Corp., about double the estimated increase for gross domestic product. Of the executives surveyed by the research firm, 31 percent said spending on security initiatives was a top initiative this year, while 19 percent chose business analytics.

Amazon gained 4.5 percent to $201.25. Morgan Stanley raised its share-price estimate for the company to $245, citing potential for operating margin expansion.

Stanley Black & Decker Inc. added 0.3 percent to $69.50 after agreeing to buy Niscayah AB for 7.6 billion kronor ($1.2 billion), outbidding rival Securitas AB to secure expansion in the market for electronic security systems. Investors will receive 18 kronor a share in cash under the terms of the offer, New Britain, Connecticut-based Stanley said. The price is 47 percent higher than the Niscayah’s closing price prior to the $910 million bid from Securitas.

--Editors: Joanna Ossinger, Jeff Sutherland

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Cecile Vannucci in New York at cvannucci1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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