Stocks Rise as Goldman, Other Banks Gain

U.S. stocks rose, erasing the biggest drop since Goldman Sachs Group Inc. was sued by the government, as investors speculated the bank will prevail and concern about financial regulation eased.

Goldman Sachs turned higher as CNBC reported that an investor picked out securities which lowered the quality of a collateralized debt obligation at the center of the government’s fraud case. Wells Fargo & Co. and Bank of America Corp. rose at least 1.4 percent as President Barack Obama’s speech on financial regulations eased concern he was planning new restrictions. Starbucks Corp. jumped on better-than-estimated earnings and builders gained on a growth in existing-home sales.

The Standard & Poor’s 500 Index rose 0.2 percent to 1,208.67 at the 4 p.m. close in New York after losing as much as 1.3 percent, its steepest retreat since the Securities and Exchange Commission announced its suit against Goldman Sachs on April 16. The Dow Jones Industrial Average advanced 9.37 points, or 0.1 percent, to 11,134.29.

“There’s hope that the facts of the case will not be detrimental to Goldman no matter what happens,” said Alan Gayle, a money manager at RidgeWorth Investments in Richmond, Virginia, which oversees $63 billion. “Aside from all the challenges that the economy and the market face, the overall trend is positive. The improvement in existing home sales is leading to a snap back in consumer discretionary stocks.”

Greece Concern

Earlier losses in stocks were triggered by disappointing forecasts from health-care and technology companies and concern that widening European government deficits will derail the economic recovery. The European Union said today Greece’s deficit was 13.6 percent of gross domestic product last year, higher than the government’s April 7 forecast of 12.9 percent.

Greek bond yields have jumped to the highest in more than a decade on concern that the nation’s surging budget deficit will leave the country struggling to finance its debt. Moody’s Investors Service cut the country’s bond ratings to A3 from A2 and placed them on review for possible further downgrade.

The S&P 500 Financials Index rose 0.6 percent, reversing an earlier decline of as much as 1.4 percent. Wells Fargo jumped 1.7 percent to $33.58 and Bank of America advanced 1.4 percent to $18.54.

Obama called on the financial industry to drop its “furious efforts” to fight his regulation plan, saying a failure to impose tougher rules on the market will put the economy at risk. His speech at New York’s Cooper Union college was intended to build momentum for legislation to overhaul U.S. financial regulations and offered no new policy proposals to crack down on the industry.

Regulation Concern

“Obama’s speech had an effect on financials,” said James Paulsen, who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “Some people were concerned about stronger regulation after the Goldman Sachs event.”

Goldman Sachs erased a loss of as much 1.7 percent and rose 0.1 percent to $159.05. ACA Management LLC, a bond-insurance company that lost money in the CDO at the center of the government’s case against Goldman Sachs, suggested securities that lowered the quality of the CDO and appeared to have mistakenly thought it was upgrading quality, CNBC reported, citing documents and unidentified experts.

The SEC’s suit against Goldman Sachs accused the firm of creating and selling CDOs without disclosing to investors that hedge fund Paulson & Co. picked the underlying securities and was betting against them.

ACA added 14 securities with lower credit ratings and threw out 68 of 123 securities suggested by Paulson, the business channel said.

PNC Rallies

PNC Financial Services Group Inc. rose 5.4 percent to $68.82. The fifth-largest U.S. bank by deposits said profit rose 28 percent on higher net interest income and a decrease in reserving for bad loans.

A gauge of 12 homebuilders gained 4.5 percent, the most since Feb. 2, as Standard Pacific Corp. and Lennar Corp. rose at least 6.6 percent.

The National Association of Realtors said sales of previously owned homes rose in March for the first time in four months as buyers took advantage of a tax credit and the weather improved. Purchases climbed 6.8 percent to a 5.35 million annual rate and the median price climbed 0.4 percent from March 2009. The California Association of Realtors said home prices in that state jumped 21 percent in March from a year earlier.

Consumer Shares

Starbucks Corp. and Marriott International Inc. led companies that rely on consumer discretionary spending up 1.7 percent, the biggest gain among 10 groups in the S&P 500.

Starbucks advanced 7.3 percent to $27.25. The world’s largest coffee-shop operator raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates, helped by sales of Via instant coffee and an increase in customer visits.

Marriott rose 6.2 percent to $36.82. The largest U.S. hotel chain reported a profit for the first quarter as revenue rose and charges weren’t repeated. Earnings of 22 cents a share beat the average estimate of about 20 cents from 17 analysts in a Bloomberg survey.

Starwood Hotels & Resorts Worldwide Inc. advanced 7.3 percent to $53.72. The owner of the St. Regis and W hotel brands had its outlook revised to “positive” from “stable” by Standard & Poor’s.

Earnings Season

SanDisk Corp. rose 12 percent to $42.22. The biggest maker of flash-memory cards for digital cameras and phones posted first-quarter profit excluding some items of 99 cents a share, beating the average analyst estimate by 68 percent.

About 83 percent of S&P 500 companies that have reported first-quarter results beat the average analyst earnings estimate, according to data compiled by Bloomberg, which could mark a record proportion in data going back to 1993.

Baxter International Inc. led health-care companies to the biggest drop in the S&P 500 among 10 groups, plunging 13 percent to $51.13. The maker of blood products and vaccines cut its full-year 2010 earnings forecast on costs from the U.S. health- care overhaul.

The health-care industry was also the worst performer in the S&P 500 yesterday as Gilead Sciences Inc. and Abbott Laboratories said new laws affecting the industry will hurt sales. Eli Lilly & Co. and Johnson & Johnson this week also projected reduced sales because of the health-care overhaul.

Qualcomm, EBay Slump

Qualcomm Inc. dropped 7.7 percent to $39.33. The company projected profit of 40 cents to 44 cents a share for this quarter. Analysts predicted 44 cents, according to the average estimate in a Bloomberg survey.

EBay Inc. retreated 5.7 percent to $24.78 after the owner of an e-commerce marketplace and the PayPal online payment service said second-quarter profit will be 37 cents to 39 cents a share, excluding one-time items. Analysts in a Bloomberg survey had estimated 40 cents on average.

U.S.-traded shares of Nokia Oyj plummeted 13 percent to $12.99. The world’s biggest maker of mobile phones posted lower- than-estimated profit on competition from Apple Inc.’s iPhone and a network unit loss, and reducing its forecast for the year.

“Qualcomm and EBay’s numbers disappointed,” said Joseph Saluzzi, co-head of equity trading at Chatham, New Jersey-based Themis Trading LLC. “Stock prices have run too far and you’d need to have earnings to support them.”

U.S. government data showed the number of claims for unemployment benefits fell last week as the rebounding economy prompted companies to cut fewer jobs. Initial jobless applications dropped by 24,000 to 456,000 in the week ended April 17, the Labor Department said.

A separate report showed wholesale prices in the U.S. rose more than forecast in March, boosted by higher costs for energy and the biggest gain in food since 1984. The 0.7 percent increase in prices topped the median economist estimate of a 0.5 percent increase.

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

Visitors check out a Qualcomm display at the Korea IT Show in Seoul in this file photo. Photographer: Seokyong Lee/Bloomberg

April 22 (Bloomberg) -- Bloomberg's Courtney Donohoe reports on the performance of the U.S. equity market today and earnings reported after the close of trading. U.S. stocks rose, erasing the biggest drop since Goldman Sachs Group Inc. was sued by the government, as investors speculated the bank will prevail and concern about financial regulation eased. (Source: Bloomberg)

April 22 (Bloomberg) -- Jim Bianco, president of Bianco Research LLC, talks with Bloomberg’s Matt Miller and Carol Massar about Greece's debt crisis. The European Union said Greece’s budget deficit last year was worse than previously forecast and Moody’s Investors Service cut the country’s creditworthiness, sending Greek bond yields soaring. Bianco also discusses U.S. stocks, corporate earnings and financial regulation.(Source: Bloomberg)