Stocks jump after 3-day fall
U.S. stocks snapped a three-day decline and the Dow Jones industrial average had its biggest rally this year as takeover speculation and stock-buyback news boosted some blue chips.
Railroad shares led a rally in the Dow transportation stock index that drove it to a record high.
Investors seemed confident leading up to Federal Reserve Chairman Ben S. Bernanke’s testimony before Congress today and Thursday about Fed policy and the economic outlook.
The Dow industrials jumped 102.30 points, or 0.8%, to 12,654.85 after losing 114 points in the previous three sessions.
Aluminum giant Alcoa, one of the 30 Dow members, surged $2.10 to $35 after the Times of London said BHP Billiton, the world’s biggest mining company, and Rio Tinto Group, another miner, were independently considering plans for a $40-billion takeover of Alcoa.
Alcoa and Rio Tinto declined to comment. BHP denied the report.
The Dow also got a boost from 3M, which rose $1.84 to $76.43 after announcing a $7-billion stock buyback plan.
Takeovers and buybacks have helped drive the market sharply higher since mid-2006. Takeover bids suggest that stocks are attractively priced, analysts note.
“We are in a period where corporate earnings growth rates are starting to moderate, companies are flush with cash, and if you can’t grow organically it’s very easy to grow through acquisitions,” said David Rolfe, who helps manage $650 million at Wedgewood Partners Inc. in St. Louis.
“There’s a ton of capital out there waiting just to do that.”
The market rally Tuesday was broad-based: Winners topped losers by more than 2 to 1 on the New York Stock Exchange and by 3 to 2 on Nasdaq.
The Standard & Poor’s 500 index gained 10.89 points, or 0.8%, to 1,444.26.
The technology-heavy Nasdaq composite was up 9.50 points, or 0.4%, to 2,459.88.
The Russell 2,000 small-stock index rose 0.8% to 812.53.
Stocks advanced even as oil prices rebounded. Near-term crude futures in New York rose $1.25 to $59.06 a barrel after the International Energy Agency increased its forecast for global oil consumption this year.
Oil had tumbled $2.08 on Monday.
In the Treasury bond market yields were little changed ahead of Bernanke’s testimony. The 10-year T-note yield ended at 4.81%, up from 4.8% on Monday.
Among the day’s market highlights:
* Many commodity-related stocks rose sharply on speculation about a bid for Alcoa. Winners included the rumored bidders, BHP and Rio Tinto. BHP was up $1.01 to $45.02; Rio Tinto soared $6.56 to $216.99.
Alcan, a rival of Alcoa, jumped $2.56 to $54.75. Foothill Ranch-based Kaiser Aluminum was up $1.53 to $75.65.
Also in the commodity sector, Potash surged $5.24 to $155.36, Vulcan Materials gained $3.24 to $111.41 and U.S. Steel rose $1.90 to $87.51.
* Railroad stocks rallied after brokerage Bear Stearns recommended the sector. CSX rose $1.43 to $39.37 and Norfolk Southern jumped $1.99 to $50.41.
Those gains helped push the Dow transportation index up 1.5% to a record 5,011.87, topping its previous peak of 5,006.89 reached Feb. 2.
According to the “Dow theory,” it’s bullish for the market outlook when the Dow industrials and Dow transports indexes are hitting new highs at the same time. The Dow industrials hit a record high of 12,673.68 on Feb. 1.
* General Motors climbed 88 cents to $36.59, its highest since August 2005. Merrill Lynch upgraded the stock to “buy” from “sell” on optimism that its pension surplus boosted prospects for a favorable labor agreement this year.
Rival Ford Motor slid 20 cents to $8.45. The stock is a bigger risk after rising 30% from a December low, said Merrill, which cut Ford to “sell” from “neutral.”
Toyota Motor’s U.S.-traded shares were up $3.07 to $134.86 as Japan’s Nikkei-225 index hit a six-year high.
* Applebee’s International soared $2.09 to $26.32. The restaurant operator said it was exploring a sale after its third-biggest shareholder criticized management for failing to boost revenue and cut costs.
Also in the restaurant sector, Brinker International, parent of Chili’s, jumped $2.07 to $35.19 and Panera Bread gained $1.20 to $58.40.
* Priceline.com rocketed $4.99 to $50.92 after the online travel agency forecast better-than-expected 2007 profit.
* En Pointe Technologies slumped $1.74 to $4.52 after the El Segundo-based technology service company reported higher quarterly earnings but a drop in revenue.
* Nasdaq Stock Market plunged $4 to $31.10, its steepest decline since August 2003. The second-largest U.S. equity market said its earnings growth would slow this year after fourth-quarter profit rose less than the most optimistic analysts’ estimates. Nasdaq over the weekend conceded defeat in its bid to buy the London Stock Exchange.
NYSE Group, parent of the New York Stock Exchange and Nasdaq’s arch-rival, rose $1.77 to $90.19.
