U.S. Stocks Gain Following Pfizer-Wyeth Deal; Banks Rally

Jan. 26 (Bloomberg) -- U.S. stocks rose for a second day after Pfizer Inc. agreed to purchase Wyeth in the biggest drug merger in almost five years and European banks reassured investors they were taking steps to overcome credit losses.

Wyeth added as much as 3.6 percent after Pfizer agreed to pay $68 billion for the drugmaker. Bank of America Corp. and Citigroup Inc. climbed, following European banks higher, after Barclays Plc said record revenue will cover writedowns and ING Groep NV planned to cut costs by 1 billion euros in 2009. Benchmark indexes extended gains following reports showing existing home sales rebounded and the index of leading economic unexpectedly increased.

“The announcement of the merger between Pfizer and Wyeth is somewhat encouraging to people who might be looking for some M&A activity to liven things up,” said John Carey, who runs the $4.64 billion Pioneer Fund that beat 74 percent of its peers last year. “The fact that a big company is willing to make a large acquisition right now is a hopeful sign.”

The Standard & Poor’s 500 Index added 1.8 percent to 846.76 at 12:05 p.m. in New York. The Dow Jones Industrial Average increased 106.97 points, or 1.3 percent, to 8,184.53. Europe’s Dow Jones Stoxx 600 Index advanced for the first time in six days, adding 3.1 percent. The MSCI Asia Pacific Index retreated 0.3 percent.

Home Sales, LEI

Stocks extended gains after sales of previously owned homes last month unexpectedly rose 6.5 percent from a record low, propelled by the biggest slump in prices since the Great Depression, the National Association of Realtors said. The Conference Board’s index of leading economic indicators increased 0.3 percent, the first gain in six months, after a 0.4 percent drop in November.

The S&P 500 fell 2.1 percent last week, bringing its 2009 loss to 7.9 percent, after companies slashed profit forecasts as the recession cut demand for everything from crude oil to computer chips.

Wyeth advanced as much as $1.59 to $44.89. Pfizer, the world’s biggest drugmaker, will pay $50.19 a share in cash and stock for Wyeth, 29 percent more than Wyeth’s closing price on Jan. 22, the day before talks were reported. Pfizer retreated 8.9 percent to $15.90. The drugmaker said it will cut 10 percent of its workforce and close five plants. S&P said it may cut Pfizer’s AAA credit rating because of the deal.

Banks Rally

The Financial Select Sector SPDR Fund, or so-called XLF, added as much as 4.6 percent to $9.40 after Barclays Plc said it will avoid further capital increases as revenue grows and ING Groep replaced its chief executive officer, cut jobs and got a mortgage guarantee to cope with the financial crisis. The XLF reflects the value of the 81 banks, brokerages and insurers in the S&P 500, giving investors a stake in the group through a single investment.

Bank of America jumped 8 percent to $6.76. Citigroup Inc. climbed 4 percent to $3.61. JPMorgan Chase & Co. gained 4.4 percent to $25.50.

Lennar Corp. climbed 14 percent, the most in the S&P 500, to $7.82. The U.S. homebuilder was raised to “buy” from “hold” by analysts at Citigroup, who said a 40 percent sell- off since Barry Minkow claimed the firm operated like a “Ponzi scheme” was “overdone.” The builder failed to disclose material transactions among executives and joint ventures, Minkow said. Lennar has denied the allegations.

Rohm and Haas Co. dropped 16 percent, the most in the S&P 500, to $55.60 after saying Dow Chemical Co. doesn’t intend to close its $15.4 billion acquisition by tomorrow as required by their merger agreement.

20,000 Job Cuts

Caterpillar Inc. slumped $2.85 to $32.81 after reporting profit that trailed analysts’ estimates. The world’s largest maker of bulldozers and excavators also said it is cutting 20,000 jobs amid dwindling demand. Questions about the depth and duration of the U.S. recession triggered a plan to cut production costs in line with a 25 percent decline in sales volume, the company said in a statement.

General Electric Co. jumped 3 percent to $12.39 after S&P said the company’s and General Electric Capital Corp.’s AAA debt ratings are not “immediately affected” by the company’s fourth-quarter earnings results.

Ford Motor Co., the second-largest U.S. automaker, jumped 12 percent to $2.02 after the company projected that U.S. sales of light trucks and cars will be about the same in January as in December.

Texas Instruments Inc., the second-largest U.S. chipmaker, and American Express Co., the biggest U.S. credit-card company by purchases, are among companies due to report earnings after the stock market closes.

‘Absolute Disaster’

Profits have decreased 47 percent for the 84 companies in the S&P 500 that have released fourth-quarter results since Jan. 12. Analysts now forecast a 32 percent drop in earnings for the fourth quarter after saying in March 2008 that net income would rise as much as 55 percent, according to Bloomberg data.

“Earnings have been an absolute disaster so far, but the market feels that earnings numbers couldn’t possibly get any worse than they are,” said David Kelly, chief market strategist at JPMorgan Funds, which oversaw $304 billion as of Oct. 8. “The market is getting used to the shocking news flow even though the hits keep on coming.”

The U.S. government this week will probably report that the economy shrank at the fastest pace in 26 years in the fourth quarter of last year. Gross domestic product contracted at a 5.5 percent annual rate, according to the median estimate in a Bloomberg News survey of economists.

White House officials warned that economic prospects are darkening as they sought to ensure rapid Congressional approval of President Barack Obama’s $825 billion stimulus package.

Vice President Joe Biden told the CBS program “Face the Nation” that “it’s worse, quite frankly, than everyone thought it was.” Larry Summers, Obama’s top economic adviser, said the economy faces “very difficult” months, speaking yesterday on NBC’s “Meet the Press.”