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U.S. Stocks Rise as CSX Results, China Reserves Boost Optimism on Economy

U.S. stocks rose, sending benchmark indexes to five-month highs, as better-than-estimated results at CSX Corp. and China’s record currency reserves boosted optimism in the economic recovery.

CSX, the second-largest publicly traded U.S. railroad, rallied 4.2 percent after also saying it’s seeing improvements across almost all markets. Alcoa Inc. added 1.3 percent and Freeport-McMoRan Copper & Gold Inc. advanced 3.8 percent, leading a measure of raw-materials producers to the biggest gain among 10 industries in the Standard & Poor’s 500 Index, amid speculation that Chinese demand will improve after the world’s fastest-growing major economy announced $2.65 trillion in currency reserves.

The S&P 500 rose 0.7 percent to 1,178.10 at 4 p.m. in New York, the highest level since May 3. The Dow Jones Industrial Average increased 75.68 points, or 0.7 percent, to 11,096.08.

“The market’s got a lot of tailwinds operating right now,” said John Kattar, chief investment officer at Eastern Investment Advisors in Boston, which manages $1.6 billion. “Earnings should be good, and that should be a catalyst for the market, and everyone’s looking ahead to” bond purchases by the Federal Reserve to spur growth. “All risk assets have responded dramatically just to expectations.”

The S&P 500 rose for a third day yesterday after Fed policy makers indicated a readiness to pump more cash into the economy to protect the recovery by buying additional Treasury securities, a tactic known as quantitative easing. The gauge has rallied 15 percent from this year’s low on July 2.

Record Streak

Going into this earnings season, more than 70 percent of S&P 500 companies have topped the average analyst earnings estimate for five straight quarters, the longest streak in Bloomberg data going back to 1993.

The prospect of Fed purchases has boosted the prices of Treasury notes and bonds, driving two-year yields to record lows and 10-year yields to the lowest since January 2009. While discouraging investment in government debt, as benchmarks the low yields keep borrowing costs down for companies and consumers.

The number of mortgage applications in the U.S. climbed for the first time in six weeks as record-low interest rates led to a surge in refinancing. The Mortgage Bankers Association’s index increased 15 percent in the week ended Oct. 8, the Washington- based group said today.

Euphoria

“Quantitative easing euphoria, coupled with the lack of bad surprises from quarterly results, and some switch from bonds toward equities in view of year-end portfolio rebalancing is driving the market,” said Ricciardo Ricciardelli, managing director at Unifortune Investment Management SGR SpA in London.

CSX jumped 4.2 percent to $59.66, the biggest gain since June 10, after third-quarter profit topped analyst estimates. The advance led industrial stocks to the second-biggest increase among 10 industries in the S&P 500. Earnings from continuing operations climbed to $414 million, or $1.08 a share, exceeding the $1.04 average estimate of 24 analysts surveyed by Bloomberg.

Eighteen companies in the S&P 500 are scheduled to release third-quarter results this week. Analysts surveyed by Bloomberg predict 23 percent profit growth from a year earlier for companies in the index, the fourth straight quarterly increase after a record nine-quarter slump.

Alcoa, the biggest U.S. aluminum producer, advanced 1.3 percent to $13.37. Freeport-McMoRan, the world’s largest publicly traded copper producer, gained 3.8 percent to $99.08.

Copper rose to a 27-month high in New York and London on prospects for increased consumption of the metal. Crude oil rose for the first time in three days after China, the world’s largest consumer, reported record imports in September.

China Reserves

China’s foreign-exchange reserves increased by a record to $2.65 trillion at the end of September while a 25 percent jump in exports lifted its trade surplus to $16.9 billion, reinforcing optimism the country will continue to lead the global recovery.

Asian stocks also rose after Japanese machinery orders unexpectedly jumped 10.1 percent in August, the most since December, and Australian consumer confidence rebounded in October as the central bank extended a pause on interest-rate increases and employment surged.

JPMorgan Chase & Co. and Intel Corp. declined even after reporting third-quarter profit that topped the average analyst estimates. JPMorgan, the first of the largest U.S. banks to report earnings, fell 1.4 percent to $39.84 as revenue missed some analysts’ forecasts. Intel, the biggest maker of semiconductors, dropped 2.7 percent after gaining for six days in a row. Intel’s fourth-quarter sales forecast also beat the average analyst estimate.

Earnings ‘A Positive’

“The initial signs from the bellwethers are that this third-quarter earnings season is going to be a positive and help lift the overall stock market,” said Robert Pavlik, chief market strategist at Palm Beach Gardens, Florida-based Banyan Partners LLC, which manages about $1 billion. “The slow growth we’re seeing so far hasn’t done a tremendous negative impact to these firms.”

Williams Cos. surged 9.8 percent to $21.53 for the biggest advance in the S&P 500. Citigroup Inc. maintained its “buy” rating and $28.50 price estimate for the U.S. natural-gas pipeline operator. The company is Citigroup’s top pick in the integrated natural gas space, equity analyst Faisel Khan wrote in a note to clients. Williams also announced that its Chairman and Chief Executive Officer Steve Malcolm will retire at the end of the year. He’ll be succeeded as CEO by Alan Armstrong, president of the company’s midstream business since 2002.

Apple Inc. advanced as much as 1.2 percent to a record $301.96, before closing 0.5 percent higher at $300.14. The company is making a version of its iPhone model that Verizon Communications Inc. will sell, the Wall Street Journal reported, citing people familiar with the matter.

Clearwire, MGM

Clearwire Corp. jumped 6.8 percent to $7.21. The high-speed wireless carrier is seeking to raise $2.5 billion to $5 billion in a wireless spectrum auction that has attracted telephone and cable companies, said people with direct knowledge of the sale.

MGM Resorts International tumbled 11 percent to $12.10. The biggest casino operator on the Las Vegas Strip plans to raise more than $500 million by selling stock, and said its founder and biggest shareholder will reduce his stake.

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

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

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