U.S. Stocks Rally; Fannie Mae, GE Advance on Analyst Upgrades

U.S. Stocks Rally; Fannie Mae, GE Advance on Analyst Upgrades


March 20 (Bloomberg) -- U.S. stocks rose, extending the first weekly advance in a month, after an analyst said more mortgage purchases by Fannie Mae and Freddie Mac will help stabilize the home-loan market and Merrill Lynch & Co. advised clients to buy General Electric Co.

Fannie Mae and Freddie Mac, the biggest sources of mortgage financing, led financial firms to a 6.9 percent gain after Keefe, Bruyette & Woods upgraded the shares. GE, the second-biggest U.S. company by market value, climbed to the highest level this year after Merrill analysts said its earnings will weather a recession. Lehman Brothers Holdings Inc., Bear Stearns Cos. and Morgan Stanley gained more than 10 percent each as investors speculated the Federal Reserve is succeeding at stemming losses from bad home loans.

The Standard & Poor's 500 Index added 31.09 points, or 2.4 percent, to 1,329.51. The Dow Jones Industrial Average advanced 261.66, or 2.2 percent, to 12,361.32. The Nasdaq Composite Index rose 48.15, or 2.2 percent, to 2,258.11.

``Fannie Mae and Freddie Mac softens the blow and prevents this outcome from being worse,'' said James Swanson, the Boston- based chief investment strategist at MFS Investment Management, which oversees about $200 billion. ``The economy outside the U.S. is holding up, and you can see it in these big multinationals that continue to produce big profit gains.''

The S&P 500 increased 3.2 percent this week and posted its steepest one-day rally in five years on March 18, fueled by speculation the Fed will revive the economy with interest-rate cuts. Economists predict U.S. growth will slow to 0.1 percent this quarter before accelerating in the next two, according to the median estimate in a Bloomberg survey between March 3 and 10.

Energy, Materials

Declines in raw-materials producers kept the S&P 500 from an even bigger rally as gold capped the biggest weekly loss since 1990. Falling commodities prices dragged down Asian stocks, while European shares retreated after Credit Suisse Group said the freeze in credit markets may force it to post a loss.

``This is the time to go back into the equity markets, particularly the U.S. market,'' said Komal Sri-Kumar, who oversees $147.2 billion as chief global strategist of TCW Group. ``The U.S. equity market will outperform the rest of the world.''

Exchanges in North and South America will be closed tomorrow for Good Friday.

Fannie Mae gained $3.59 to $34.30. Freddie Mac added $2.68 to $32.58. Keefe, Bruyette & Woods analyst Frederick Cannon upgraded the shares to ``outperform'' from ``market perform.'' The government-sponsored enterprises had their surplus capital requirement cut to 20 percent from 30 percent by the Office of Federal Housing Enterprise Oversight yesterday, which may help pump $200 billion into the mortgage-backed securities market.

`Crisis Is Over'

Other banks and brokerage firms also advanced after Punk Ziegel & Co. analyst Richard Bove wrote in a research note that ``the financial crisis is over'' and it is a ``once in a generation opportunity to buy.''

Citigroup Inc., the largest U.S. lender by assets, climbed $2.09 to $22.50. Bank of America Corp., the second-biggest, increased $3.30 to $41.86. Goldman Sachs Group Inc., the largest U.S. securities firm, rose $13.14 to $179.63.

Bove advised selling financial shares eight months ago before they extended losses. The Amex Securities Broker/Dealer Index declined 19 percent in the next four months. His recommendation to buy Citigroup in November preceded a 27 percent plunge in the company's shares.

Lehman, Bear

Lehman gained $6.42, or 15 percent, to $48.65 after falling 9.2 percent yesterday and jumping 46 percent the day before. Morgan Stanley added $6.22, or 14 percent, to $49.67. Bear, in the process of being taken over by JPMorgan Chase & Co., climbed 63 cents, or 12 percent, to $5.96.

The Federal Reserve expanded collateral eligible for its auction of Treasuries to include bundled mortgage debt and securities linked to commercial real-estate loans. The program, announced March 11, is one of three lending facilities Chairman Ben S. Bernanke created to try to ease credit-market pressures.

GE rose $1.90 to $37.49. Merrill upgraded the shares to ``buy'' from ``neutral.'' GE, whose businesses include turbines, jet engines, medical imaging machines, security and finance, will benefit from its above-average dividend yield and growth in spending on power generation capacity and X-ray machines, analyst John G. Inch wrote in a report today.

BLOOMBERG