U.S. stocks advanced, led by banks, on speculation Congress will reach an agreement on a $700 billion bailout of financial institutions, helping revive lending and credit markets.
Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. added as much as 6.6 percent on expectations policy makers will approve the plan, avoiding a ``long and painful recession'' President George W. Bush warned that would occur otherwise. Nike Inc. gained 8 percent as the world's largest athletic-shoe maker said earnings fell less than analysts estimated. Bed Bath & Beyond Inc. rose 5.3 percent after its forecast beat projections.
The Standard & Poor's 500 Index increased 20.74 points, or 1.8 percent, to 1,206.61 at 10:41 a.m. in New York. The Dow Jones Industrial Average climbed 200.48, or 1.9 percent, to 11,025.65. Seven stocks rose for every two that fell on the New York Stock Exchange, where trading volume was 34 percent less than at the same time a week earlier.
``There's more optimism about this plan getting through, and that's shining through into the market,'' said Daniel Bandi, who manages about $2.5 billion as chief investment officer of Integrity Asset Management LLC in Independence, Ohio.
The S&P 500 is down 19 percent this year on concern more than $500 billion in credit losses and writedowns at financial firms globally and a slowing economy are curbing profits. Speculation that lawmakers will derail the White House's plan to rescue banks pushed stocks lower yesterday. The benchmark index for U.S. equities has erased 70 percent of the gains it posted on Sept. 18 and 19 after the bailout plan was proposed.
`Basically Done'
Stocks rallied after representative Paul Kanjorski, a Pennsylvania Democrat, told CNBC that ``the package is basically done.'' Representative Spencer Bachus, the top Republican on the Financial Services Committee, said lawmakers were not close to a deal, as he entered a meeting to negotiate an accord.
``The market knows the deal's going to be done,'' said Peter Kenny, managing director in institutional sales at Knight Equity Markets LP in Jersey City, New Jersey. ``If the market suspected it was not going to pass, we'd be trading much lower.''
Bush's forecast for the economy and a warning yesterday from Bernanke that the U.S. faces ``grave threats'' increased chances of a Federal Reserve interest rate cut to 92 percent by the next meeting Oct. 29. Financial futures show traders expect the central bank to lower its benchmark rate to 1.75 percent in October and see 40 percent odds they will shift to 1.50 percent before the year is over.
Borrowing Costs Surge
Money-market interest rates around the world soared on mounting concern the U.S. Treasury's $700 billion bailout plan will be diluted as it makes its way through Congress, causing financial institutions to hoard cash. The three-month London interbank offered rate, or Libor, that banks charge each other for dollar loans jumped today by the most since 1999. The rate is set once a day.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened 0.14 percentage point to 3.16. That's the most since Bloomberg began compiling the data in 1984. It was 1.14 a month ago.
Bank of America Corp. rose 4.4 percent to $34.52. JPMorgan Chase added 6.6 percent to $43.17. Citigroup advanced 2.7 percent to $19.48.
Nike climbed $4.74 to $64.01. It said orders in China surged and reported first-quarter earnings that beat analysts' estimates after the Beijing Olympics boosted sales.
Profit Forecast
Bed Bath & Beyond, the largest U.S. home furnishings retailer, rose $1.63 to $32.34. The company said third-quarter earnings may be as much as 47 cents a share, 2 cents more than the average analyst forecast compiled by Bloomberg.
General Electric Co. retreated 1.7 percent to $24.18 percent after blaming ``unprecedented weakness'' in financial markets as the company reduced its profit forecast. The company cut its third-quarter profit forecast to between 43 cents and 48 cents a share, less than a previous forecast of 50 cents to 54 cents. GE also suspended its stock buyback.
``We thought GE would be a defensive holding,'' said Ralph Shive, chief investment officer at South Bend, Indiana-based 1st Source Corp. Investment Advisors, which manages $3 billion including GE shares. ``It's a disappointment.''
Stocks briefly pared their gain after the government said orders for U.S. durable goods fell more than twice as much as forecast in August, a sign that slower sales and tighter credit conditions prompted companies to cut spending. The 4.5 percent drop in bookings of goods meant to last several years followed a revised 0.8 percent gain in July that was smaller than previously reported. Excluding transportation equipment, orders decreased 3 percent, the biggest drop since January 2007.
Equities remained higher even after a separate government report showed sales of new homes fell more than expected in August to a 17-year low. The annual rate of new home sales tumbled 11.5 percent to 460,000, the fewest since January 1991, the Commerce Department said. The median estimate of economists polled by Bloomberg was 510,000.
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