U.S. Stocks Rise to Highest Level Since May on Manufacturing

July 01, 2011, 4:28 PM EDT By Rita Nazareth and Cecile Vannucci

July 1 (Bloomberg) -- U.S. stocks rose, sending benchmark indexes to their highest levels since May and the biggest weekly gains in two years, amid an unexpected pickup in American manufacturing growth.

Home Depot Inc., 3M Co. and Intel Corp. rallied at least 1.4 percent, pacing gains among companies most-dependent on economic growth. Apollo Group Inc. jumped 6.4 percent as the operator of for-profit schools reported earnings that beat analysts’ estimates. KB Home climbed 3.9 percent as the homebuilder said it doesn’t plan to issue equity. Eastman Kodak Co. tumbled 14 percent after a ruling on patent claims against Apple Inc. and Research In Motion Ltd. was postponed.

The Standard & Poor’s 500 Index rose 1.4 percent to 1,339.67 at 4 p.m. in New York. That extended its weekly rally to 5.6 percent, the most for the gauge since July 2009. The Dow Jones Industrial Average gained 168.43 points, or 1.4 percent, to 12,582.77 today. It also advanced the most in a week since July 2009.

“Clearly, today is good news with the manufacturing data,” said Michael Vogelzang, chief investment officer at Boston Advisors LLC, which manages $1.9 billion. “This is just a recovery off of a six-week very difficult period. People are putting the risk trade back on.”

The S&P 500 fell 1.8 percent in June, spurring the first quarterly loss in a year, on concern about Europe’s debt crisis and weaker-than-expected economic data. The index was still up 5 percent in 2011 through yesterday as government stimulus measures, takeovers and higher-than-estimated corporate earnings lifted investors’ confidence.

Stocks extended gains after a report showed that U.S. manufacturing unexpectedly expanded at a faster pace in June, a sign the industry is rebounding after shortages of parts and components from Japan slowed production. The Institute for Supply Management’s factory index rose to 55.3 last month from 53.5 in May. Economists estimated the index would drop to 52, according to the median forecast in a Bloomberg News survey. Figures greater than 50 signal expansion.

The ISM report was a positive surprise at a time when manufacturing growth is slowing from China to Europe, creating a dilemma for central bankers considering higher interest rates to combat inflation. China’s factory index fell to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted.

Greece’s Financing

Global stocks also rose. Greece may receive as much as 85 billion euros ($124 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro-region’s debt crisis, according to an Austrian Finance Ministry official.

“Greece is probably going to avert the default,” said Don Wordell, a fund manager for Atlanta-based RidgeWorth Capital Management, which oversees about $48 billion. “It’s a long process, but near-term, I believe they will resolve everything they need there.”

Stocks should rally during the second half of the year, sending the S&P 500 to 1,550 by the end of 2011, as corporate earnings grow and equities remain cheap, Deutsche Bank AG said.

Equities are less expensive, earnings will expand faster than the U.S. economy and there will be a pickup in growth for domestic cyclical industries such as financials, industrials and technology, Bankim “Binky” Chadha, Deutsche Bank’s New York- based chief U.S. equity strategist, said.

--With assistance from Victoria Stilwell in New York. Editors: Joanna Ossinger, Chris Nagi

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Cecile Vannucci in New York at cvannucci1@bloomberg.net

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

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