U.S. Stocks Gain on Goldman, Lehman Earnings, Fed Speculation

U.S. stocks rallied the most in a week after Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. posted earnings that beat estimates and investors speculated the Federal Reserve will slash interest rates.

Goldman, the largest securities firm, climbed the most in almost seven years. Lehman, the fourth-biggest, posted its steepest gain since November 1998. Citigroup Inc. and JPMorgan Chase & Co. climbed as traders predicted the central bank will reduce its benchmark rate by 1 percentage point to stem credit- market losses. Exxon Mobil Corp., the largest U.S. oil company, rose as crude recovered from the biggest drop in seven months.

The Standard & Poor's 500 Index added 26.84 points, or 2.1 percent, to 1,303.44 at 10:12 a.m. in New York. The Dow Jones Industrial Average gained 220.3, or 1.8 percent, to 12,192.55. The Nasdaq Composite Index increased 42.26, or 1.9 percent, to 2,219.27. Twelve stocks rose for every one that fell on the New York Stock Exchange. European and Asian stocks advanced for the first time in four days.

``It restores some confidence that the Street is not in nuclear meltdown,'' said Peter Sorrentino, who helps manage $15 billion at Huntington Asset Management in Cincinnati. ``There are some firms impacted but we're still talking about profits.''

Financial shares posted the top six gains in the S&P 500 as futures contracts indicated traders see a 100 percent chance the Federal Open Market Committee will cut its target for the overnight bank lending rate to 2 percent. The central bank's announcement is due around 2:15 p.m. Washington time.

Goldman, Lehman Beat

Goldman surged $13.71, or 9.1 percent, to $164.73. Net income fell to $1.51 billion, or $3.23 a share, in the three months ended Feb. 29 from $3.2 billion, or $6.67, a year earlier, Goldman said in a statement. The average estimate of 17 analysts surveyed by Bloomberg was for $2.59 a share, with forecasts ranging from $1.95 to $3.40.

Lehman, which lost 19 percent yesterday, climbed 18 percent today to $37.49. First-quarter net income declined to $489 million, or 81 cents a share, from $1.15 billion, or $1.96, a year earlier, the New York-based firm said. That beat the 72- cent average estimate of 16 analysts surveyed by Bloomberg. Earnings were depressed by a $1.8 billion writedown caused by the slump in the mortgage market.

Assuming Lehman will fail because Bear Stearns did is ``a bad bet to make,'' said Punk Ziegel & Co. analyst Richard Bove. While both are involved in mortgage securities, Lehman has more diversity from overseas operations, money-management businesses and more high-profile deals, Bove wrote in a note to clients.

`Bottoming Out'

Citigroup advanced $1.14, or 6 percent, to $19.76. JPMorgan, the third-largest U.S. bank, and Merrill Lynch & Co., the third-largest securities firm, gained more than five percent.

U.S. financial stocks are getting closer to ``bottoming out,'' analysts at Morgan Stanley said, trimming their sell positions in Citigroup and National City Corp.

``We view the banks as vulnerable to the credit cycle, with Fed rate cuts only a partial offset,'' the analysts, led by Nigel Dally, wrote in a report to clients. ``But some of these risks are now in the stocks.''

Financial shares tumbled to their lowest level in almost five years yesterday on concern Wall Street's biggest firms may be overvalued following the $2-a-share takeover of Bear Stearns Cos. by JPMorgan.

GM, Exxon

General Motors Corp. rose 6 percent to $18.98. The largest U.S. automaker has enough cash and doesn't expect any fallout from its ties to Bear Stearns, Chief Operating Officer Fritz Henderson said.

Exxon gained $1.05 to $86.84 as oil recovered some of yesterday's 4.1 percent retreat, the steepest decline since August 2007. Chevron Corp., the second-biggest U.S. energy company, added 98 cents to $85.17.

Crude oil for April delivery rose 2.4 percent to $108.21 a barrel in New York on speculation U.S. interest-rate cuts will drive the dollar down further, prompting investors to buy commodities. The dollar fell for a fifth day against the euro.

Yahoo! Inc. rose $1.35, or 5.2 percent, to $27.20. The Internet search company that snubbed advances from Microsoft Corp. reaffirmed its forecasts for the first quarter and the year in a bid to prove it can stay independent. Cash flow may almost double in the next three years, Yahoo said.

Economy Watch

Prices paid to U.S. producers rose less than forecast in February, while prices excluding food and energy jumped the most since November 2006. The 0.3 percent increase followed a 1 percent gain in January, the Labor Department said. Excluding food and energy, so-called core wholesale prices climbed 0.5 percent, more than double the gain economists forecast.

Combined with figures last week showing consumer prices were unchanged in February, today's report signals companies may be faced with weaker profits as slowing demand reduces pricing power.

Housing starts in the U.S. dropped in February and construction permits fell to the lowest level in more than 16 years, signaling construction will continue to hurt economic growth. Builders broke ground on 1.065 million homes at an annual rate, down 0.6 percent from a revised 1.071 million pace in January that was higher than previously reported, the Commerce Department said.