Dec. 19 (Bloomberg) -- U.S. stocks rose the first time in three days time on speculation the European Central Bank's injection of $500 billion into the financial system will help the economy withstand a deteriorating housing market. The yen fell against the dollar and euro after the ECB's cash injection encouraged carry trades. Goldman Sachs Group Inc., the world's largest securities firm, reported record earnings in the worst quarter for Wall Street in six years.

TOP STORIES/MOST READ ON BLOOMBERG

Money Market Rates Tumble; Central Banks Inject Funds

The cost to borrow in euros plunged after the European Central Bank added an unprecedented $500 billion to the banking system as part of a global effort to ease credit-market gridlock through year-end.

The two-week euro interbank offered rate dropped a record 50 basis points to 4.45 percent, the European Banking Federation said today. The rate had climbed 83 basis points in the past two weeks as banks anticipated a squeeze on credit through the end of the year.

The decline may signal that policy makers, in their first coordinated action since Sept. 11, 2001, are making headway in reviving lending between banks. The credit-market crisis has caused banks from UBS AG to Deutsche Bank AG to report writedowns on securities linked to U.S. subprime mortgages, and sent money-market rates soaring.

Goldman Gains in Worst Wall Street Quarter Since '01

Goldman Sachs Group Inc., the world's largest securities firm, reported record earnings in the worst quarter for Wall Street in six years.

Fourth-quarter net income climbed 2 percent to $3.22 billion, or $7.01 a share, from $3.15 billion, or $6.59, a year earlier, the New York-based firm said in a statement. Goldman fell as much as 5.6 percent in New York Stock Exchange composite trading after Chief Financial Officer David Viniar said he was ``cautious about the near-term outlook.''

Goldman's earnings were buoyed by $1.3 billion of gains from the sale of power plant investments and loans to finance leveraged buyouts. Chief Executive Officer Lloyd Blankfein sidestepped mortgage losses that unseated CEOs at Merrill Lynch & Co., Citigroup Inc. and UBS AG.

Fed Plans to Tighten U.S. Mortgage Rules After Crisis

The Federal Reserve proposed new rules for subprime mortgages, including a ban on low-documentation loans and limits on penalties for borrowers who prepay their debts.

The plans, the Fed's biggest regulatory initiative since Chairman Ben S. Bernanke took office in February 2006, are aimed at curbing lending practices that contributed to record foreclosures. Board members unanimously voted in a hearing today to make lenders responsible for determining whether borrowers can afford their mortgages even after low starter rates expire.

Bernanke is aiming to preserve the Fed's consumer protection role after Democratic lawmakers blamed it for lax oversight and introduced legislation to set rules for mortgage lenders. Today's proposals received mixed responses from legislators, consumer advocates and finance-industry officials.

`Deal With Devil' Funded Carrera Crash Before Bust

One week in 2002, Daniel Sadek was $6,000 short of covering the payroll for his new subprime mortgage company, Quick Loan Funding Corp. So he flew to Las Vegas and put a $5,000 chip on the blackjack table.

``I could have borrowed the money, I suppose,'' Sadek says.

That wouldn't have been his style. With his shoulder-length hair and beard, torn jeans and T-shirts with slogans such as ``Where is God?'' Sadek looked more like a guitarist for Guns N' Roses than a mortgage banker.

Sadek says he was dealt a jack, then an ace. Blackjack. He would make payroll. Quick Loan Funding, based in Costa Mesa, California, would survive and, for a while, prosper as one of 1,300 mortgage lenders in the state vying to satisfy Wall Street's thirst for subprime debt.

As home prices rose and hunger for high-yield investments grew, Sadek found his niche pushing mortgages to borrowers with poor credit. Such subprime home loans grew to $600 billion, or 21 percent, of all U.S. mortgages last year from $160 billion, or 7 percent, in 2001, according to Inside Mortgage Finance, an industry newsletter. Banks drove that growth because they could bundle subprime loans into securities, parts of which paid interest as much as 3 percentage points higher than 10-year Treasury notes.

MAIN ECONOMIC RELEASES TODAY Figures are based on Bloomberg survey of economists:

Bank of Japan Policy Makers Begin Two-Day Interest Rate Meeting New Zealand Immigration, Tourism Figures for November Are Due Westpac Australian Leading Economic Index for October Is Due Malaysian Nov. Consumer-Price Inflation Seen Accelerating to 2%

MAIN COMPANIES/EARNINGS

South Korea -- trading resumes on Thursday, Dec. 20

Former Seoul Mayor Lee Myung Bak, will likely wait until tomorrow to see if he can celebrate his 66th birthday along with a presidential win, the first win for a conservative candidate in 10 years in South Korea.

MAIN ANALYST UPGRADES/DOWNGRADES *BRAMBLES RAISED TO `OUTPERFORM' FROM NEUTRAL AT CREDIT SUISSE *KOREAN AIR CUT TO `NEUTRAL' FROM `BUY' AT GOLDMAN SACHS *GOODMAN GROUP RAISED TO `BUY' AT MERRILL LYNCH *BEC WORLD CUT TO `UNDERPERFORM' AT MACQUARIE *AGL ENERGY CUT TO `UNDERPERFORM' AT CREDIT SUISSE *VALAD PROPERTY GROUP RAISED TO `BUY' AT MERRILL LYNCH *AUCKLAND INTL AIRPORT RAISED TO `OUTPERFORM' AT MACQUARIE *ZINIFEX RAISED TO `BUY' FROM `HOLD' AT DEUTSCHE BANK *SYNNEX TECH RAISED TO `OUTPERFORM' AT MACQUARIE *HUNAN NONFERROUS RAISED TO `NEUTRAL' AT GOLDMAN SACHS

ASIAN MARKETS

The Nikkei 225 futures contract due in December rose 45 points to 15,225. The Hang Seng Index futures for December gained 232 to 26,729. The S&P/ASX 200 Index futures due in December advanced 29 to 6,237 at 7:59 a.m. in Sydney.

U.S. STOCKS RISE, LED BY UTILITY, ENERGY SHARES; HESS ADVANCES

U.S. stocks climbed for the first time in three days on speculation the European Central Bank's injection of $500 billion into the financial system will help the economy withstand a deteriorating housing market.

General Motors Corp., the biggest automaker, Excelon Corp., the largest operator of U.S. nuclear plants, and Hess Corp., the fifth-biggest energy company, led gains by all 10 Standard & Poor's 500 Index industries. Fannie Mae and Freddie Mac, the two largest providers of funds for home loans, had the biggest and fourth-biggest advances in the gauge.

The S&P 500 gained 9.08, or 0.6 percent, to 1,454.98. The Dow Jones Industrial Average added 65.27, or 0.5 percent, to 13,232.47. The Nasdaq Composite Index increased 21.57, or 0.8 percent, to 2,596.03. About 14 stocks rose for every five that dropped on the New York Stock Exchange.

TEN-YEAR NOTES RISE AFTER U.S. HOUSING STARTS, PERMITS DECLINE

Ten-year Treasuries rose for a second day after a government report showed U.S. housing starts declined last month and permits for future construction fell to a 14-year low.

Treasuries earlier fell after the European Central Bank added a record $500 billion to the banking system, a day after the Federal Reserve auctioned short-term funds to add cash to lending markets. The gap between two-year and 10-year note yields narrowed, suggesting waning demand by investors for short-maturity debt.

Ten-year note yields fell 2 basis points to 4.12 percent at 4:07 p.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 1/4 percent security due November 2017 rose 5/32, or $1.56 per $1,000 face amount, to 101.

YEN FALLS AS ECB'S $500 BILLION INJECTION SPURS CARRY TRADE

The yen fell against the dollar and euro after the European Central Bank added a record $500 billion to the banking system, encouraging investors to borrow in Japan and buy higher-yielding assets elsewhere.

Japan's yen weakened versus 14 of the 16 most actively traded currencies, dropping the most against the Brazilian real, South African rand and Australian dollar. Global banks were more willing to lend to each other after the ECB's injection today and the Federal Reserve's auction of $20 billion yesterday.

The yen declined to 113.40 against the dollar at 4 p.m. in New York, from 112.95 yesterday. It touched 113.60 on Dec. 14, the weakest in more than a month. The yen fell to 163.33 per euro, from 162.64. The dollar was little changed at $1.4403 per euro.

EUROPEAN STOCKS DROP ON GOLDMAN SACHS; CREDIT SUISSE RETREATS

European stocks fell for a second day after Goldman Sachs Group Inc., the world's largest securities firm, said it's ``cautious'' about the next quarters.

Credit Suisse Group, Switzerland's second-biggest bank, and Barclays Plc retreated. Nestle SA dropped after UBS AG recommended investors trim their holdings in the world's largest food company.

The Dow Jones Stoxx 600 Index lost 0.1 percent to 360.43. The measure earlier climbed as much as 0.9 percent after the European Central Bank added a record $500 billion to the financial system to break the gridlock in credit markets.

National benchmarks dropped in 10 of the 18 western European markets. France's CAC 40 lost 0.1 percent, while the FTSE 100 added less than 0.1 percent. Germany's DAX gained 0.3 percent. The Stoxx 50 slipped 0.2 percent, while the Euro Stoxx 50, a measure for the euro region, decreased 0.1 percent.

EUROPEAN 10-YEAR GOVERNMENT BONDS RISE ON SPECULATION OVER RATE

European 10-year government bonds rose on speculation the region's central bank will be forced to cut interest rates to shore up the economy.

The advance pushed yields down from near a 1 1/2-month high as European stock markets pared or reversed gains. German bunds dropped earlier after the European Central Bank pumped an unprecedented $500 billion into the banking system to ease a year-end credit squeeze.

The yield on the 10-year German bund, the benchmark for Europe, fell 2 basis points to 4.27 percent by 5:31 p.m. in London. It may slide to 4 percent by year-end, Chin said.

The price of the 4.25 percent security due July 2017 rose 0.13, or 1.3 euros per 1,000-euro ($1,439) face amount, to 99.79.

Two-year yields were little changed at 4.03 percent. Yields move inversely to bond prices.

OIL FALLS A FOURTH DAY AS TURKISH TROOPS BEGIN TO LEAVE IRAQ

Crude oil fell a fourth day as Turkish troops began to withdraw from Iraq and on speculation that warmer weather in the eastern U.S. will curb fuel use.

Turkey's forces started to pull back after they penetrated 8 kilometers (5 miles) into Iraq's majority-Kurdish north, the Patriotic Union of Kurdistan said. Prices rose more than $2 after the announcement that Turkish forces had entered the region. The National Weather Service forecast higher-than-normal temperatures in a six-to-10 day period in the Northeast U.S.

Crude oil for January delivery fell 14 cents to $90.49 a barrel on the New York Mercantile Exchange. Futures rose as high as $92.88 and fell as low as $88.88 today. Prices are up 45 percent from a year ago. The last time prices fell for four consecutive days was during the first week of October.

The January contract expires today. The more-active February contract dropped 97 cents, or 1.1 percent, to $90.08.

GOLD RISES ON SPECULATION FED WILL CUT RATES, WEAKEN DOLLAR

Gold rose on speculation that turmoil in credit markets will force the Federal Reserve to cut interest rates, boosting the appeal of the precious metal as an alternative to the dollar. Silver also gained.

The dollar was little changed against the euro after a U.S. report showed housing starts and building permits fell in November and the European Central Bank said it added $500 billion to the banking system to ease the credit crunch. Gold has gained 27 percent this year as the dollar has fallen 8.4 percent against the euro.

Gold futures for February delivery rose $8.10, or 1 percent, to $807.40 an ounce on the Comex division of the New York Mercantile Exchange. The price earlier reached $811.40.

Silver futures for March delivery rose 18.5 cents, or 1.3 percent, to $14.165 an ounce. The metal is up 9.5 percent this year.

HIGHLIGHTS FROM NEWSPAPERS

Matsushita, Canon May Buy Into Hitachi for Panels, Nikkei Says

Matsushita Electric Industrial Co. and Canon Inc. will likely acquire equal minority stakes in a Hitachi Ltd. subsidiary to develop organic electroluminescence panels, Nikkei English News said, without citing anyone.

Westfield Group to Build Retail Space at Ground Zero, NYT Says

Westfield Group, the world's largest shopping center owner, will return to Ground Zero to help develop retail space, pending approval today from the Port Authority of New York and New Jersey, the New York Times said.

Last Updated: December 18, 2007 16:30 EST