Sept. 10 (Bloomberg) -- U.S. stocks rose as investors snapped up energy shares trading at their cheapest level in 18 months, while better-than-forecast earnings at FedEx Corp. buoyed industrial companies.

Exxon Mobil Corp. and ConocoPhillips led oil stocks to their biggest gain in six weeks and helped the Standard & Poor's 500 Index rebound from its steepest drop since February 2007. FedEx Corp. rallied 3.7 percent as lower fuel costs helped boost profit at the largest air-cargo carrier. Lehman Brothers Holdings Inc. slid 6.9 percent, adding to yesterday's record 45 percent tumble and sending financial stocks to a second-straight decline, after the securities firm posted a wider loss than analysts estimated.

The S&P 500 advanced 7.53 points, or 0.6 percent, to 1,232.04. The Dow Jones Industrial Average added 38.19, or 0.3 percent, to 11,268.92, and the Nasdaq Composite Index climbed 18.89, or 0.9 percent, to 2,228.7. More than two stocks rose for each that dropped on the New York Stock Exchange.

``The valuations of some of these energy companies are at levels that warrant addressing by a lot of value investors,'' said Robert Lutts, president and chief investment officer of Cabot Money Management in Boston, which oversees $500 million. ``If you were waiting for bargains in the energy sector, you've got some today.''

Energy Valuation

The valuation of companies in the S&P 500 Energy Index sank to an average 9.9 times trailing earnings yesterday, the cheapest since March 2007, as oil slid to a five-month low on speculation OPEC won't cut output. The gauge of 39 energy producers has tumbled 26 percent from its May record as oil retreated 30 percent from a peak of $147.27 a barrel in July on signs global economic growth is slowing.

Crude oil futures today fell 68 cents to $102.58 a barrel, the eighth drop in nine days and the lowest price since April. Natural gas futures fell almost 2 percent. Energy shares still rose the most among the S&P 500's 10 main industry groups, with 38 of 39 companies in the group advancing.

The gains pared the S&P 500's decline this year to 16 percent. The main benchmark for U.S. equities is poised for its first annual drop since 2002, led by financial companies, as more than $500 billion in bank credit losses and asset writedowns linked to falling home prices damp the outlook for earnings.

Profit Watch

Analysts expect profits at companies in the index to fall 1.7 percent on average in the third quarter and slip 2.1 percent in 2008, according to estimates compiled by Bloomberg.

Stocks tumbled yesterday as concern about Lehman Brothers Holdings Inc.'s ability to raise capital rattled the banking industry and a drop in oil prices pushed energy companies down by the most since August 2002.

Exxon, the biggest oil company, increased $1.99 to $75.25, driving the S&P 500 Energy Index to a 3.6 percent advance. Chevron Corp., the second-biggest U.S. oil company, added 3 percent to $81.16 and ConocoPhillips, the No. 3. U.S. energy company, jumped 5.2 percent to $71.87.

FedEx climbed $3.11 to $87.86. Earnings were $1.23 a share for the period ended Aug. 31, eclipsing the outlook of 80 cents to $1, FedEx said yesterday after exchanges closed. Analysts expected 95 cents, according to the average of 12 estimates compiled by Bloomberg. Rival UPS Inc. added 2.4 percent to $66.69.

FedEx helped lead the S&P 500 Industrials Index to a 0.6 percent advance.

`Priced In'

``With a lot of these stocks, slower growth has already been priced in, but the benefit of lower fuel prices has not been priced in yet,'' said Greg Woodard, strategist at Manning & Napier in Fairport, New York, which manages $18 billion, including FedEx shares. ``That's where you could see upward reactions in the stocks.''

Texas Instruments Inc. rose 14 cents to $21.85. Third- quarter revenue will be between $3.33 billion and $3.47 billion, the Dallas-based company said yesterday. The midpoint, $3.4 billion, matched a previous forecast and the average estimate of analysts in a Bloomberg survey.

Texas Instruments fell 3 percent yesterday after Raymond James Associates Inc. downgraded it to ``outperform'' from ``strong buy'' and Stifel Nicolaus predicted it would lower its revenue forecast.

A 7.4 percent drop in technology shares this month may overestimate the earnings impact of slower global growth, said Walter Todd, money manager at Greenwood Capital in Greenwood, South Carolina, which oversees $750 million.

`Valid Concern'

``There are valid concerns about a slowdown in worldwide growth, but a lot of that's in the names at this point,'' Todd said.

Washington Mutual Inc. tumbled the most in the S&P 500, losing 30 percent to $2.32, the lowest price since November 1990. At least three potential acquirers ended negotiations to buy either Seattle-based WaMu or Cleveland's National City Corp., bankers involved in the talks said. One sticking point, they say, is an accounting rule change that will force acquirers to compute a target's assets at market prices instead of deriving values from measures including the purchase price.

WaMu also slid as S&P lowered its credit rating outlook for the largest U.S. savings and loan, citing potential credit losses.

Lehman Brothers fell 6.9 percent to $7.25, the lowest since Oct. 7, 1998. Most of today's decline occurred in the last hour of trading after Moody's Investors Service placed Lehman's credit ratings under review.

Before the market opened today, the fourth-largest U.S. securities firm said it will shore up capital by selling assets, including a majority stake in its asset-management unit, following a $3.9 billion third-quarter loss.

`Survival Mode'

``The market's concern is that they haven't taken aggressive enough steps early on in this process,'' Liam Dalton, New York- based chief executive officer of Axiom Capital Management, which oversees $1.3 billion, told Bloomberg Television. ``They're obviously in survival mode and desperately trying to take tactical steps to reassure Wall Street.''

Merrill Lynch & Co., the third-biggest U.S. securities firm, fell 5.9 percent to $23.30, the lowest since October 1998. Financial shares in the S&P 500 dropped 0.7 percent as a group after losing 6.6 percent yesterday.

The S&P 500 Regional Banks Index fell 3.2 percent after Keefe Bruyette & Woods downgraded nine institutions. The industry faces a ``challenging'' operating environment ``amid slowing economic growth, contraction of credit and constrained capital,'' analyst Jefferson Harralson wrote in a report.

Bank Downgrades

Synovus Financial Corp., downgraded to ``underperform,'' slumped 2.5 percent to $9.77 after the owner of 35 banks in the southeastern U.S. also cut its dividend by 65 percent and eliminated 650 jobs, about 9 percent of its staff.

Fifth Third Bancorp and Valley National Bancorp retreated more than 5 percent. SunTrust Banks Inc., Marshall & Ilsley Corp., Huntington Bancshares Inc., BB&T Corp. and Comerica Inc. fell by between about 1 percent and 5 percent. South Financial Group Inc. rose despite being downgraded.

Salesforce.com Inc., the biggest seller of Internet-based customer management software, climbed 7.7 percent to $56.09, while Fastenal Co., the largest U.S. retailer of nuts and bolts, added 0.8 percent to $52.58. The two were picked to replace Fannie Mae and Freddie Mac in the S&P 500 after the federal government nationalized the two mortgage finance companies this week.

International Rectifier Corp., the maker of semiconductors that help machines use less power, rose 7 percent to $22.57. Vishay Intertechnology Inc. raised its bid to buy the company to $23 a share from $21.22 and plans to begin a tender offer to shareholders.

Boeing Co. fell 3.6 percent to $61.71 and contributed the most to the Dow average's drop. The world's second-largest commercial aircraft maker said it expects a work stoppage by its machinists, its largest union, to last at least a month.

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

Last Updated: September 10, 2008 16:34 EDT