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U.S. Stocks Gain on Economic Data, Europe's Attempts to Stem Debt Crisis

U.S. stocks rose this week, sending benchmark indexes to their biggest gains in a month, amid improved economic data and efforts by the European Central Banks to stem the region’s debt crisis.

Home Depot Inc. jumped 8 percent, the biggest gain in the Dow Jones Industrial Average, as construction spending and existing home sales topped economists’ estimates. Bank of America Corp. and JPMorgan Chase & Co. advanced at least 5.6 percent after Goldman Sachs Group Inc. recommended financial stocks. Abercrombie & Fitch Co. rose 16 percent, its biggest weekly advance since July, after same-store sales surged.

The Standard & Poor’s 500 Index increased 3 percent to 1,224.71 in the five days yesterday, its largest gain in four weeks. The Dow rallied 290.09 points, or 2.6 percent, to 11,382.09. The 30-stock gauge had its biggest two-day rally since July on Dec. 1-2, surging 3.2 percent.

“With Europe, it appeared some of the recent flare-up on the continent was going to subside and markets reacted positively,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, which oversees more than $50 billion in Philadelphia. “There are continued signs of improvement but the economy isn’t yet completely out of the woods. The market’s going to be subject to setbacks.”

The S&P 500 is up 20 percent from this year’s low in July after companies reported higher-than-estimated earnings and the Federal Reserve announced a second round of Treasury purchases to suppress interest rates and stoke growth. Goldman Sachs’ investment strategist David Kostin said the S&P 500 may rise to 1,450 by the end of next year as the economic recovery accelerates. Bank of America’s David Bianco raised his 12-month target for the index to 1,400 from 1,350.

ECB Bailout

U.S. equities advanced as ECB policy makers kept the benchmark interest rate at a record low of 1 percent and delayed the bank’s exit from emergency liquidity measures as the debt crisis threatens to engulf Portugal and Spain. Ireland on Nov. 28 became the second country to tap European assistance, following Greece. It received a rescue package worth 85 billion euros ($112 billion).

Home Depot, the largest U.S. home-improvement retailer, rallied 8 percent to $33.48, its biggest weekly advance since July 2009. The U.S. Commerce Department said construction spending rose 0.7 in October, lifted by the biggest gain in residential projects in six months. The median estimate of economists in a Bloomberg survey called for a 0.3 percent drop.

Record Increase

Homebuilders advanced after a report said Americans signed contracts to buy previously owned homes in October, sending the index of pending home resales to a record 10 percent increase. Lennar Corp., the third-largest U.S. homebuilder, gained 15 percent to $17.26, its biggest one-week rally in seven months.

The S&P 500 fell as much as 0.4 percent yesterday after the Labor Department said the unemployment rate rose to 9.8 percent from 9.6 percent. The benchmark index then rebounded with commodity prices, ending the day with a 0.3 percent gain. The report also said U.S. payrolls increased by 39,000 last month, trailing the median economist projection in a Bloomberg News survey for an increase of 150,000 jobs.

“There’s been a separation between the lack of health in the labor markets and very positive conditions for corporate balance sheets. That’s not surprising.” said David Sowerby, a Bloomfield Hills, Michigan-based money manager at Loomis Sayles & Co., which oversees $150 billion. “Profits traditionally rebound before labor markets do. If this were to persist for two or three months and were combined with a drop in ISM manufacturing, then investors would be more concerned.”

ISM Report

A Dec. 1 report showed the Institute for Supply Management’s manufacturing index slipped to 56.6 in November from 56.9 in October. Readings exceeding 50 signal expansion.

Financial shares jumped after Goldman Sachs said banks will outperform the market next year because of “stronger economic growth, an improved equity investing environment and a more supportive interest rate environment.” Marshall & Ilsley Corp. rallied 18 percent to $5.60 for the biggest gain in the S&P 500. Bank of America rose 6.7 percent to $11.86 after three straight weeks of declines. JPMorgan increased 5.6 percent to $39.61.

Abercrombie & Fitch had the second-biggest advance in the S&P 500, climbing 16 percent to $56.15. The teen clothing retailer said its sales at stores open at least one year surged 22 percent in November. Analysts, on average, expected a 6.4 percent increase, according to Retail Metrics Inc.

Kroger Co., the U.S. supermarket chain that fell the most in a year on Dec. 2 after lowering the top end of its full-year profit forecast, slipped 8.5 percent $21.11, the biggest decline in the S&P 500. Barclays Plc cut its recommendation to “equal weight” from “overweight.”

The benchmark index for U.S. stock options fell the most this week since May. The VIX, as the Chicago Board Options Exchange Volatility Index is known, dropped 19 percent to 18.01. The index, which measures the cost of using options to protect against S&P 500 declines, slumped after jumping 23 percent last week.

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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