U.S. Stocks Snap Three-Day Drop as Commodity Producers Advance

May 25, 2011, 1:38 PM EDT By Rita Nazareth

May 25 (Bloomberg) -- U.S. stocks advanced, with benchmark indexes snapping a three-day decline, as commodity shares rallied on expectations for higher raw material prices.

Schlumberger Ltd. and Halliburton Co. gained at least 1.5 percent as oil climbed following a report showing that U.S. distillate fuel supplies dropped to a two-year low. Freeport- McMoRan Copper & Gold Inc. advanced 2.1 percent as copper rose after Deutsche Bank AG said prices are likely to rebound. Fifth Third Bancorp led gains in financial institutions, rising 1.4 percent, as Fitch Ratings said it probably won’t downgrade German banks because of their holdings of Greek debt.

The Standard & Poor’s 500 Index added 0.3 percent to 1,320.37 at 1:13 p.m. in New York, after earlier falling as much as 0.3 percent. The Dow Jones Industrial Average rose 34.40 points, or 0.3 percent, to 12,390.61 today.

“The rally in stocks and commodities reflects the view that the global economic recovery is in place,” said Eric Teal, chief investment officer at First Citizens Bancshares Inc. in Raleigh, North Carolina, which manages $4 billion. “There had been some concern about softness in recent data and that’s why we saw a pullback. Profits and margins should be sustained at these levels. The trend is higher and the rally will be driven by companies most-exposed to economic growth.”

Commodity Shares Slump

The S&P 500 fell 3.5 percent from an almost three-year high on April 29 through yesterday on concern about Europe’s debt crisis and weaker-than-forecast economic data. Indexes of commodity producers led the declines during that period, slumping at least 6.3 percent. Still, the benchmark gauge rose 4.7 percent since the end of 2010 through yesterday on government stimulus measures and higher-than-forecast profits.

Gauges of energy and raw material shares rose at least 1.3 percent today, the two-biggest gains in the S&P 500 within 10 industries. The Thomson Reuters/Jefferies CRB Index of 19 raw materials rallied 1.4 percent. Oil rose above $100 a barrel in New York. Copper gained the most in two months as Deutsche Bank said prices are likely to rebound, following similar comments from Goldman Sachs Group Inc. and JPMorgan Chase & Co.

Schlumberger, the world’s largest oilfield services provider, added 1.5 percent to $84.49. Halliburton rose 3.6 percent to $49.19 after Morgan Stanley raised its recommendation for the world’s second-largest oilfield services provider to “overweight” from “equal-weight.” Freeport, the largest publicly traded copper producer, gained 2.1 percent to $49.87.

‘Manageable’

Financial companies helped pace a rebound in benchmark indexes as Fitch Ratings said German banks have “manageable” risks related to Greek sovereign debt and the Mediterranean country’s economy.

“The worst consequence of any Greek sovereign default for German and other European banks would be a sharp increase in general capital market and creditor risk aversion at a time when many banks are still in rehabilitation mode,” Michael Dawson- Kropf, a Frankfurt-based analyst at Fitch, said in an e-mailed statement today.

Fifth Third Bancorp, Ohio’s largest lender, added 1.4 percent to $12.66, pacing gains in financial shares.

RF Micro Devices Inc. climbed 5.7 percent to $6.08. The U.S. maker of chips and radio systems for mobile phones was added to the focus list at Morgan Keegan.

Take-Two Interactive Software Inc. rose 3.1 percent to $16.59. The producer of the “Grand Theft Auto” video games reported a fourth-quarter loss, excluding some items, that was 55 percent narrower than the average analyst estimate.

Durable Goods

Stock futures extended declines before the start of regular trading as a report showed that orders for durable goods dropped more than forecast in April, reflecting less demand for aircraft and disruptions in supplies of auto parts stemming from the earthquake in Japan.

Bookings for goods meant to last at least three years fell 3.6 percent, the most since October, after a 4.4 percent jump in March, a Commerce Department report showed. Economists projected a 2.5 percent drop in April, according to the median forecast in a Bloomberg News survey. A measure of demand for business equipment declined by the most this year.

Costco Wholesale Corp. lost 1.2 percent to $80.37. The largest U.S. warehouse-club chain reported fiscal third-quarter profit of 73 cents a share, missing the average analyst estimate by 4.8 percent.

AIG Slumps

American International Group Inc. declined 4.9 percent to $28.03. The Treasury sold 200 million shares yesterday at $29 each, compared with the closing price of $29.46 on the New York Stock Exchange. The government, which retains a majority stake, needs to sell shares at an average of about $28.73 to recover a $47.5 billion investment. AIG disposed of 100 million shares, raising $2.9 billion, according to a statement from the company.

AIG, once the world’s largest insurer, is seeking private capital after a government rescue that swelled to $182.3 billion, including Federal Reserve support. The Treasury in 2010 sold the last of its holdings in Citigroup Inc. and reduced its ownership in General Motors Co. to a minority stake. New York- based AIG is the only insurer that hasn’t repaid its bailout.

“Going out and standing on their own again is definitely what they want to do, and they’re beginning that process,” Cliff Gallant, a KBW Inc. analyst who rates AIG shares “underperform,” said in an interview. “The government can’t sell 90 percent in one swoop.”

--Editors: Joanna Ossinger, Michael Regan

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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