U.S. Stocks Climb as Personal Spending Outweighs Factory Index

U.S. stocks gained, building on the biggest September rally since 1939, as higher-than-estimated consumer spending and confidence bolstered optimism in the economic recovery.

Schlumberger Ltd. and Occidental Petroleum Corp. rose at least 1.3 percent as oil topped $81 a barrel, leading energy stocks to the biggest gain among 10 groups in the Standard & Poor’s 500 Index. Citigroup Inc. and JPMorgan Chase & Co. rallied more than 1.9 percent as financial companies rebounded from two days of declines. Accenture Plc jumped 4.5 percent after forecasting sales that may top estimates.

The S&P 500 advanced 0.4 percent to 1,146.24 as of 4 p.m. in New York, a 0.2 percent decline for the week. The Dow Jones Industrial Average gained 41.63 points, or 0.4 percent, to 10,829.68. Stocks also rose after Federal Reserve Bank of New York President William Dudley said the central bank will probably need to take action to spur the recovery and avert deflation.

“As long as personal spending continues to creep up, one can’t be negative about the economy or the market,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which oversees $9 billion. “Personal spending and income haven’t recovered fully, but they increased. What it tells us is the economy will slog along between now and the middle of next year.”

Consumer Purchases

Stocks rallied in the first half hour of trading as Commerce Department data showed consumer purchases rose 0.4 percent in August, exceeding the 0.3 percent median increase projected by economists surveyed by Bloomberg News. Incomes were up 0.5 percent, the biggest advance this year. The Thomson Reuters/University of Michigan measure of consumer confidence declined less than forecast, signaling the largest part of the economy may be stabilizing.

All 10 industry groups in the S&P 500 advanced last month, sending the index to an 8.8 percent September rally and erasing its loss for 2010, amid speculation the world’s largest economy will avoid slipping back into a recession and bets that the Federal Reserve will buy more debt to support the recovery.

U.S. equities erased gains briefly after the Institute for Supply Management’s manufacturing index fell to 54.4 in September, the slowest expansion in 10 months, underscoring the Fed’s forecast of “modest” U.S. growth in coming months. Readings greater than 50 signal growth. Economists forecast a decline to 54.5, according to the median estimate in a Bloomberg News survey.

Dudley said today the outlook for U.S. employment growth and inflation is “unacceptable,” suggesting the central bank may have to boost purchases of Treasuries, a measure known as quantitative easing, to spur growth and avert deflation.

‘Additional Stimulus’

“The U.S. economy is slowing but not dramatically and the Fed is still likely to invoke some quantitative easing later this year,” said Jeffrey Kleintop, chief market strategist at LPL Financial Corp. in Boston, which manages $280 billion. ISM data “was weaker news but it also maybe makes it that much more likely the Fed will step in with additional stimulus.”

Investors should raise their holdings in global equities while cutting their weightings in government bonds and cash amid the likelihood that companies will increase borrowing to boost returns to shareholders, UBS AG said in a note.

“We expect equity markets to move higher despite a sub-par recovery and the prospect of slower earnings growth,” said the note, which was dated yesterday and written by chief economist Larry Hatheway and other strategists in London and Stamford, Connecticut.

The brokerage advised allocating 47 percent of holdings to stocks, up from 45 percent previously.

Schlumberger, Occidental

Schlumberger added 1.3 percent to $62.43 and Occidental Petroleum jumped 3.2 percent to $80.77. Energy companies in the S&P 500 rallied 1.3 percent as a group as crude oil settled at $81.58, the highest price since Aug. 5.

Citigroup jumped 4.6 percent to $4.09, the biggest gain in the S&P 500. The U.S. Treasury Department said yesterday it earned a $1.02 billion profit for taxpayers from the sale of a 5 percent stake in the third-largest U.S. bank. Financial companies rallied 1.1 percent, the third-biggest gain among 10 groups in the S&P 500. JPMorgan Chase advanced the most in the Dow, rallying 1.9 percent to $38.81.

Accenture gained 4.5 percent to $44.38. The world’s second- largest technology-consulting firm forecast net revenue will be $5.6 billion to $5.8 billion for the quarter ending in November. Analysts had projected $5.62 billion, the average of estimates compiled by Bloomberg.

HP, Automakers

Hewlett-Packard Co. sank 3.1 percent to $40.77 after naming former SAP AG Chief Executive Officer Leo Apotheker as its CEO and president. The appointment prompted some analysts including Peter Goldmacher at Cowen & Co. to speculate the two companies may be set to forge closer ties or merge.

A measure of automakers and parts suppliers gained 0.2 percent after General Motors Co., Ford Motor Co. and Chrysler Group LLC said U.S. sales rose in September.

Deliveries at GM, the largest U.S. automaker, climbed 11 percent from a year earlier to 173,155, the Detroit-based company said in a statement. Ford, the second-largest, increased sales 41 percent to 160,873. Shares of Ford climbed 0.2 percent to $12.26, the first gain in three days.

Materials producers climbed 1.2 percent, the second-biggest industry gain in the S&P 500. Freeport-McMoRan Copper & Gold Inc. rose 4.4 percent to $89.13, after gold reached another record, settling at $1,317.80 an ounce.

Gymboree, Green Mountain

Gymboree Corp. jumped 20 percent to $49.86, the biggest intraday gain since April 2009, following a Wall Street Journal report that the children’s clothing retailer may sell itself. The newspaper didn’t say where it got the information. Calls and e-mails to Gymboree weren’t returned.

Green Mountain Coffee Roasters Inc. fell 5.2 percent to $29.57, the lowest price since July 28. Nestle SA, the world’s biggest food company, will begin selling Nescafe Dolce Gusto coffee makers in 2,000 Wal-Mart stores across the U.S. this month, taking on Green Mountain in its main market.

ChinaCache International Holdings Ltd., the Beijing-based provider of Internet content to businesses and government agencies, almost doubled in its first day of trading after its $84 million initial public offering. The American depositary receipts surged 95 percent to $27.15, the biggest first-day gain for a U.S. IPO since September 2007. ChinaCache sold 6.1 million ADRs at $13.90 each after delaying the IPO for a day and boosting the sale’s size from 5.5 million shares, according to a filing with the Securities and Exchange Commission and Bloomberg data.

The offering came after the number of Internet users in China, the world’s fastest growing major economy, surpassed the entire American population. While Liberty Mutual Agency Corp. this week postponed the biggest U.S. IPO of 2010, China’s SouFun Holdings Ltd. and Country Style Cooking Restaurant Chain Co. have both rallied more than 50 percent since completing initial sales in New York this month.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net.

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

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Fiat SpA CEO Sergio Marchionne

Alessandra Benedetti/Bloomberg

“The degree of transparency and openness and acceptance of change that we have seen out of the American side is something which is commendable and should be adopted,” Marchionne told reporters at the Paris Motor Show.

“The degree of transparency and openness and acceptance of change that we have seen out of the American side is something which is commendable and should be adopted,” Marchionne told reporters at the Paris Motor Show. Photographer: Alessandra Benedetti/Bloomberg

Oct. 1 (Bloomberg) -- Bloomberg's Gigi Stone reports on the performance of the U.S. equity market today. U.S. stocks gained, building on the biggest September rally since 1939, as higher-than-estimated consumer spending and confidence bolstered optimism in the economic recovery. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

Oct. 1 (Bloomberg) -- Thomas Lee, chief U.S. equity strategist at JPMorgan Chase & Co., talks with Bloomberg's Julie Hyman and Mark Crumpton about the outlook for the U.S. stock market. Lee also discusses the Securities and Exchange Commission and Commodity Futures Trading Commission's report on the May 6 stock market crash and his investment strategy. (Source: Bloomberg)

Oct. 1 (Bloomberg) -- Michael O'Rourke, chief market strategist at BTIG LLC, talks about the outlook for the stock market and investment strategy. O'Rourke speaks with Betty Liu and Jon Erlichman on Bloomberg Television's "In the Loop." (Source: Bloomberg)