U.S. Stocks Advance on Fed Speculation

U.S. stocks resumed gains as speculation the Federal Reserve will act to spur the economy helped offset concern about the creditworthiness of banks.

Alcoa Inc. (AA) and Exxon Mobil Corp. (XOM) added at least 0.7 percent as commodity prices rallied for a second day. Financial shares in the Standard & Poor’s 500 Index lost 1.2 percent, the most among 10 industries, as the cost to protect against a Bank of America Corp. (BAC) default rose to a record. Its shares sank 6.2 percent. Goldman Sachs Group Inc. fell 1.2 percent, erasing a 3.4 percent advance.

The S&P 500 advanced 0.3 percent to 1,127.55 at 9:43 a.m. in New York, after falling 0.1 percent. The Dow Jones Industrial Average rose 43.83 points, or 0.4 percent, to 10,898,48.

“It’s not time to be a hero,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “We’re well underweight financials. We think that the banks still their balance sheets are still in precarious state.”

Central bankers from around the world meet this week in Jackson Hole, Wyoming, for a conference that last year resulted in Bernanke signaling a second round of asset purchases that buoyed asset markets. The S&P 500 rose 28 percent between Aug. 26, 2010, and Feb. 18 after Bernanke foreshadowed a $600 billion bond-purchase program a year ago in Jackson Hole.
Feeling Pressure

Federal Reserve Chairman Ben S. Bernanke “probably feels some pressure from the stock market to respond in some fashion,” Howard F. Ward, a money manager at Mario Gabelli’s Gamco Investors Inc., said on Bloomberg Television’s “InsideTrack” with Deirdre Bolton and Erik Schatzker. “He should lay out a game plan of what he can do should the economic outlook warrant that.”

Financial institutions in the S&P 500 have tumbled 25 percent in 2011, the most among 10 groups, amid speculation the government debt crisis in Europe will spur banking losses. The industry has the second-biggest weighting in the benchmark measure of U.S. shares at 14 percent. Goldman Sachs and Bank of America have slumped 37 percent and 52 percent, respectively, the most since 2008, so far this year.

A four-week global equity rout has wiped about $8 trillion from companies’ market value as Europe’s sovereign debt-crisis and worsening economic reports in the U.S. raised concern the global economic recovery is faltering. The S&P 500 fell 16 percent from July 22 through the end of last week and its members trade at an average 11.3 times estimated earnings, near the lowest level since March 2009.
Home Sales

Purchases of new U.S. homes probably fell for a third straight month in July, pointing to lingering housing market weakness two years into the economic recovery, economists said before a report today. Sales fell 0.6 percent to a 310,000 annual pace, the slowest in four months, from a 312,000 rate in June, according to the median estimate of 75 economists in a Bloomberg News survey.

The cost to protect Goldman Sachs Group Inc. (GS)’s debt surged to the highest level since April 2009 as investor confidence in U.S. company bonds deteriorated for a fourth day.

Credit-default swaps tied to the fifth-biggest U.S. bank by assets climbed 20 basis points to 275 basis points as of 8:08 a.m. in New York, according to broker Phoenix Partners Group. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1.5 basis points to a mid-price of 128.3 basis points as of 8:29 a.m. in New York, according to index administrator Markit Group Ltd.