Stocks advanced Tuesday as orders for durable goods and some corporate profit reports topped estimates and as the Federal Reserve opened a two-day meeting expected to bring another interest rate cut today to revitalize the U.S. economy.
The Commerce Department reported that orders for big-ticket items jumped 5.2% in December, the biggest increase in five months, quieting recession fears.
Earnings exceeded Wall Street expectations at 23 companies in the Standard & Poor’s 500 index that reported results. Among the index’s big nonfinancial companies, earnings reported so far for the fourth quarter are averaging a 20% increase from a year earlier, though analysts estimate the index overall will report an 18% profit decline on average.
“When you see a durable goods number like this and then earnings outside of the financial sector doing quite well, people are beginning to realize that perhaps the contagion effect may be somewhat limited,” Damon Barglow at Eastern Investment Advisors in Boston told Bloomberg Radio.
An index of financial stocks gained 1.4% for its fifth advance in six days. The index is up 12% from a four-year low set Jan. 18.
The Dow Jones industrial average rose 96.41 points, or 0.8%, to 12,480.30, closing near its high of the day.
Broader indexes also rose but not as sharply. The Standard & Poor’s 500 index climbed 8.34 points, or 0.6%, to 1,362.30, and the Nasdaq composite advanced 8.15 points, or 0.3%, to 2,358.06.
Overseas, stocks surged after tumbling Monday. Key indexes rose 3% in Japan, 0.9% in Shanghai, 1% in Hong Kong, 1.7% in Britain, 1.1% in Germany and 1.9% in France.
The Russell 2,000 index of smaller companies rose 2.81 points, or 0.4%, to 705.20.
Advancing issues led decliners by 2 to 1 on the New York Stock Exchange.
Yields on government bonds rose along with stocks, indicating investors felt less of a need for the perceived safety of Treasuries. The 10-year Treasury note’s yield rose to 3.67% from 3.59% late Monday.
The dollar rose against the yen and was unchanged versus the euro, as gold prices fell.
Oil prices moved higher. Crude futures gained 65 cents to $91.64 a barrel on the New York Mercantile Exchange.
The Fed is widely expected to lower its key rate, now 3.5%, to as low as 3% when the central bank’s policymakers wrap up today. This is the last meeting on the Fed’s schedule for seven weeks, but that doesn’t rule out another emergency cut in the meantime.
Among financial stocks, bond insurers rallied after JPMorgan Chase increased its stake in Ambac Financial Group and New York state’s insurance regulator said it hoped to complete a bailout of bond guarantors before they lose their AAA ratings.
Ambac, the No. 2 U.S. bond insurer, added $1.80, or 16%, to $12.93 for the top gain in the S&P; 500. Industry leader MBIA gained $1.13, or 7.6%, to $15.98. JPMorgan rose $1.88 to $47.45.
Bank of America climbed 74 cents to $41.94 after describing its purchase of Countrywide Financial as on track and saying it didn’t need more capital after raising almost $13 billion last week by selling preferred stock. Countrywide gained 36 cents, or 6%, to $6.31 despite posting a $422-million fourth-quarter loss.
Another big mortgage lender, Washington Mutual, rose $1.14, or 6.8%, to $18 after its chief executive predicted that net interest income in 2008 would top the company’s forecast and help carry the thrift through a difficult year.
Pasadena-based IndyMac Bancorp surged $1.90, or 27%, to $8.93.
In other market highlights:
* Yahoo sank 10% in after-hours trading to $18.72. The Internet giant issued a 2008 sales forecast that disappointed investors.
* Sprint Nextel gained 83 cents, or 8.3%, to $10.80. The carrier has renewed talks with Clearwire to combine wireless networks that offer fast Web connections, the Wall Street Journal reported. Clearwire jumped $2.89 to $15.34.
* VMware plunged $28.13, or 34%, to $54.87. The maker of software that helps computers run more than one operating system at a time, which went public in August at $29 a share, posted lower-than-expected sales and issued a disappointing forecast for 2008. EMC, the majority owner of VMware, slid $1.02 to $15.89.
* Pepsi Bottling tumbled $3.78 to $35.53. The soda distributor sold fewer drinks in the fourth quarter than analysts expected in the U.S., Mexico and Europe. PepsiCo, which owns 35% of Pepsi Bottling, lost $1.64 to $68.63. Coca-Cola, the world’s biggest soft-drink maker, dropped 86 cents to $58.55.
* United States Steel sank $7.49, or 6.8%, to $102.58. Costs related to acquisitions and job cuts in Europe slashed fourth-quarter profit.
* Occidental Petroleum gained $3.92, or 6.1%, to $68.49. Its fourth-quarter profit rose 56% on higher oil prices.
* Lexmark International surged $4.42, or 15%, to $33.76. Strong sales to the printer maker’s business clients helped profit rise 10%, topping Wall Street expectations.
* JetBlue Airways jumped $1, or 20%, to $5.94. Higher traffic helped the discount carrier report a smaller-than-expected loss despite high fuel costs.