Nov. 7 (Bloomberg) -- U.S. stock-index futures gained as speculation the Federal Reserve will lower interest rates outweighed the highest unemployment rate in more than a decade.

Shares pared an earlier rally as the Labor Department’s employment report heightened concern the economy will shrink through next year. Exxon Mobil Corp., the biggest oil company, and Wal-Mart Stores Inc., the largest retailer, advanced as traders bet the Fed will cut borrowing costs by half a percentage point to 0.5 percent at its next meeting. Nvidia Corp. jumped 14 percent on better-than-estimated earnings.

Standard & Poor’s 500 Index futures expiring in December added 0.1 percent to 905.4 as of 9:06 a.m. in New York, indicating the measure will pare yesterday’s 5 percent drop. Dow Jones Industrial Average futures lost 3 points to 8,697 and Nasdaq-100 Index futures increased 1.1 percent to 1,253.75. Stocks in Europe and Asia declined.

“I don’t think the world is going to come to an end,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group in New York, which oversees $10 billion. “It will revive the possibility that the Fed might take action, not only on the interest-rate front, but on other fronts.”

The U.S. jobless rate climbed in October to the highest level since 1994 and payrolls dropped by 240,000 workers, signaling the economic slump inherited by Barack Obama will last well into his first year as president.

Jobless Rate

The unemployment rate rose to 6.5 percent from 6.1 percent the previous month, the Labor Department reported today in Washington. The job cuts exceeded forecasts and followed a revised loss of 284,000 in September, bringing the two-month decline in payrolls to more than half a million.

The S&P 500’s two-day tumble wiped out more than half of the index’s rebound from a five-year low on Oct. 27. The measure is down 38 percent in 2008 on concern almost $700 billion in credit losses and writedowns at financial firms worldwide will push the global economy into recession, hurting the outlook for earnings. Analysts expect full-year profits at companies in the index to drop 7.7 percent, according to estimates complied by Bloomberg.

More than $6 trillion has been erased from U.S. equity markets this year. Banks led the drop, losing 52 percent as a group, followed by commodities producers and computer companies.

Economists Stephen Roach at Morgan Stanley and Neal Soss of Credit Suisse say this year’s contraction was under way in March. Harvard University economist Martin Feldstein, a member of the National Bureau of Economic Research, said that month that a recession had probably started in the U.S. The group is responsible for dating business cycles in the U.S.

Shrinking Economy

The U.S. economy shrank for first time since 2001 a year ago after the drop in housing prices froze credit markets globally. President George W. Bush authorized more than $1 trillion in spending to bail out banks.

The S&P 500 closed yesterday at a price that is 19.9 times the average earnings of its companies in the last 12 months. That’s 20 percent more expensive than its lowest level of the decade, 16.6 times earnings in July 2006.

Futures on the Chicago Board of Trade showed an 84 percent chance the Fed will cut its 1 percent target rate for overnight lending between banks by a half-percentage point at its Dec. 16 meeting, compared with 55 percent odds a week ago.

Wal-Mart increased 6 cents to $53.55. Home Depot, the world’s largest home-improvement retailer, climbed 7 cents to $21.

Nvidia Climbs

Nvidia jumped 14 percent to $8.73. The second-largest maker of computer-graphics chips reported third-quarter profit and revenue that beat analysts’ estimates after job cuts and a new contract with Apple Inc. helped cushion the impact of the economic slowdown.

Wells Fargo & Co. fell 6.2 percent to $26.98 as the biggest bank on the U.S. West Coast raised $11 billion in a stock sale to help pay for its purchase of Wachovia Corp. and signaled banks may be able to tap the public markets for cash.

Walt Disney Co. lost 4.4 percent to $21.80. The world’s largest theme-park operator said fewer visitors are booking resort vacations in the slowing U.S. economy. Reservations have “fallen off considerably” in the past month, Chief Executive Officer Robert Iger said on a conference call yesterday, after saying fourth-quarter profit fell 13 percent.

Yahoo! Inc. slumped 10 percent to $12.58 after Microsoft Corp. said it has no interest in acquiring the search engine operator.

Ford posted a third-quarter operating loss of $2.98 billion. The company said it used up $7.7 billion in cash and would cut more salaried jobs.

The per-share operating loss of $1.31 was wider than the 93- cent average of 10 analyst estimates compiled by Bloomberg. Those figures exclude a gain for shedding future retiree medical bills under a new union contract that enabled Ford to post a net loss of $129 million, or 6 cents. The shares slipped 1 cent to $1.97.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: November 7, 2008 09:13 EST