Stocks Gain as GMAC Gets Government Money; GM, Ford Rise

[Neil D]

More good news, guys......It's slow, but it is coming back...

By Elizabeth Stanton

Dec. 30 (Bloomberg) -- U.S. stocks climbed, recouping yesterday’s losses, after the government widened its efforts to keep General Motors Corp. out of bankruptcy by shoring up its finance arm.

GM rallied as much as 11 percent as the U.S. Treasury committed $6 billion to support GMAC LLC. Rival Ford Motor Co. jumped as much as 5.4 percent. Rohm & Haas Co. climbed more than 7 percent on speculation Dow Chemical Co. will be forced to complete its acquisition of the maker of paint and coatings. Among the 10 main industry groups in the Standard & Poor’s 500 Index, only energy declined as oil and natural gas prices fell.

The Standard & Poor’s 500 Index advanced 1.2 percent to 880.21 at 11:30 a.m. in New York. The Dow Jones Industrial Average gained 88.09 points, or 1 percent to 8,572.02. The Russell 2000 Index of small companies added 1.5 percent.

“The GM news was a relief for many investors, who were concerned the government was starting to close the spigot on bailout money,” said Steven Neimeth, who manages $600 million at SunAmerica Asset Management in Jersey City, New Jersey.

The benchmark S&P 500 has plunged 40 percent in 2008, poised for its worst year since 1931, as the most severe financial crisis since the Great Depression dragged the U.S., Europe and Japan into the first simultaneous recessions since World War II. At its lowest closing level this year on Nov. 20, the S&P 500 was down almost 49 percent for the year and almost 52 percent from its Oct. 9, 2007, record.

About 2.3 billion shares changed hands on all U.S. exchanges, 18 percent fewer than at the same time a week ago. Markets will be closed on Jan. 1 for the New Year’s holiday.

U.S. stocks fell yesterday, ending the first two-day rally in three weeks, after funding for Dow Chemical’s purchase of Rohm & Haas fell through.

GMAC Stake

GM shares jumped 17 cents to $3.77. The U.S. Treasury yesterday said it will purchase a $5 billion stake in GMAC and lend $1 billion to GM so the automaker can contribute to the financing arm’s reorganization as a bank holding company.

The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

Ford, the nation’s second-largest automaker, added 3 cents to $2.25.

‘Ready to Move’

“There are signs that equity markets might be ready to move,” Gary Anderson, manager of the $2.7 billion UMB Scout International Fund, told Bloomberg Television. The fund has outperformed 93 percent of its peers this year. “Certainly the massive amount of liquidity that central banks are creating around the world is going to find a home.”

Rohm & Haas, which slid 16 percent yesterday after Dow Chemical lost access to $9 billion of cash to fund the acquisition, added $3.97 to $57.08 today. Credit Suisse AG analyst John McNulty said Dow may have a “tough time” pulling out of its plan to buy Rohm & Haas after credit-ratings cuts raised the cost of the takeover. The agreement “leaves little room for Dow to walk away,” McNulty wrote in a note to clients.

Noble Corp., the third-largest U.S. offshore oil driller, led energy companies in the S&P 500 to a 0.4 percent decline. Crude oil fell 4.9 percent and natural gas slid 4.1 percent in futures markets on speculation stockpiles are growing as the recession reduces consumption.

Europe’s Dow Jones Stoxx 600 Index rose 1.3 percent, after gains by carmakers helped trim the worst annual decline on record for the regional benchmark. The MSCI Asia Pacific Index climbed 0.6 percent.

Confidence, Housing Slump

U.S. equity benchmarks advanced even as a gauge of consumer confidence dropped to a record low and a measure of business activity remained near a 26-year low. The Conference Board’s index of consumer confidence fell to 38 from 44.7 in November, the New York-based private research group said today. The group started keeping records in 1967.

The Institute for Supply Management-Chicago’s business index increased to 34.1 this month from 33.8 in November. The gauge has been below 50, the dividing line between growth and contraction, all but four months this year.

U.S. retailers’ sales declined last week the most in almost six years as steeper markdowns before and after Christmas failed to salvage what may be the worst holiday shopping season in four decades. Sales at stores open at least a year fell 1.8 percent in the seven days through Dec. 27, the International Council of Shopping Centers and Goldman Sachs Group Inc. said. Holiday comparable-store sales may decline as much as 2 percent, according to the New York-based trade group.

‘Washout’

Home prices in 20 U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales. The S&P/Case-Shiller index plunged 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in September. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

“We have had a washout in terms of asset prices around the world in the past year,” Michael Holland, who oversees more than $4 billion as chairman and founder of Holland & Co. in New York, told Bloomberg Television. “Is it possible we could get more negative surprises which knock things down even more in 2009? Sure, but that’s not a good bet.”

Earnings of companies in the S&P 500 have declined from the year-earlier period in each of the past five quarters, matching the longest streaks on record, and the slump is forecast to continue. According to estimates compiled by Bloomberg, earnings from continuing operations will fall 12 percent in the fourth quarter from a year earlier, 10 percent in the first quarter, and 5.8 percent in the second quarter.

Alcoa Inc., the largest U.S. aluminum producer, is scheduled to report fourth-quarter results Jan. 12, the first Dow average company to do so.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.