U.S. Stocks Rise as S&P 500 Index Advances in Longest Rally Since May 2007

U.S. stocks rose for a seventh straight week, the longest rally since May 2007, buoyed by optimism about corporate earnings and European efforts to control the region’s debt crisis.

JPMorgan Chase & Co. jumped 2.9 percent as the lender posted record quarterly profit. Financial shares in the Standard & Poor’s 500 Index climbed 3.2 percent after Wells Fargo & Co. raised its rating for large banks on prospects for higher dividends. Higher oil prices boosted energy shares, which climbed the most among S&P 500 groups. Micron Technology Inc., Nvidia Corp. and Novellus Systems Inc. surged at least 12 percent amid optimism about semiconductor demand.

The S&P 500 rose 1.7 percent to 1,293.24 in the five-day period ended Jan. 14, the biggest gain in five weeks and its highest level since Aug. 28, 2008. The Dow Jones Industrial Average added 112.62 points, or 1 percent, to a 30-month high of 11,787.38.

“We have an environment that’s supportive for stocks,” said Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages $150 billion. “The economy is on a much more solid upward trajectory.”

The S&P 500 rallied after European actions to bolster the region’s sovereign-bailout fund and Portugal’s sale of government debt. The start of the U.S. earnings season helped overshadow economic data showing initial jobless claims rose more than estimated in the first week of the year and lower- than-forecast retail sales in December.

Earnings Reports

The benchmark index of U.S. equities has soared 91 percent from its March 2009 low amid government measures to stimulate the economy and corporate profits that beat predictions. Analysts predict that earnings will increase 14 percent in 2011, according to data compiled by Bloomberg News. Out of seven companies in the S&P 500 that have posted results since Jan. 10, six have beaten analysts’ per-share earnings estimates, according to data compiled by Bloomberg.

Financial shares had the second-biggest gain in the S&P 500 among 10 industries, rising 3.2 percent. Wells Fargo raised its rating on the largest U.S. banks to “overweight” from “market weight,” saying dividend payout ratios may double this year.

JPMorgan rose 2.9 percent to $44.91. The second-biggest U.S. bank reported a 47 percent increase in fourth-quarter earnings to $4.83 billion, and Chief Financial Officer Douglas Braunstein said the lender is “hopeful” it can raise its dividend and buy back shares. The bank pays a quarterly dividend of 5 cents a share, compared with 38 cents two years ago.

Bank of America rose the most in the 30-stock Dow, gaining 7 percent to $15.25, while Citigroup Inc. advanced 3.9 percent to $5.13.

Short Selling Drops

Bets against stocks in the S&P 500 Index fell to a one-year low as short sellers reduced speculation that technology and telephone stocks will decline. Short interest on the benchmark gauge dropped to 6.87 billion shares, or 3.9 percent of shares available for trading, as of Dec. 31, down 5.7 percent from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg. It was the third straight period that S&P 500 short selling fell.

Energy stocks gained the most among 10 groups in the S&P 500, climbing 3.3 percent. Crude oil futures rallied 4 percent to $91.54 a barrel in New York, the biggest rally in six weeks, as U.S. industrial production rose more than forecast in December, a sign that fuel demand may strengthen. Exxon Mobil Corp., the world’s largest company by market value, added 3 percent to $77.84. Schlumberger Ltd., the largest oilfield services provider, rallied 6.6 percent to $86.91.

Intel’s Forecast

Semiconductor stocks rallied 4.7 percent as a group, the most among 24 industries in the S&P 500. Intel Corp. forecast first-quarter sales of at least $11.1 billion, more than the average analyst estimate of $10.7 billion, as companies boost spending on computers and servers.

Nvidia, a maker of computer-graphics chips, rose the most in the S&P 500, jumping 19 percent to $23.59, after Raymond James & Associates analyst Hans Mosesmann increased his 12-month target price for the shares to $40 from $24. Nvidia has surged 53 percent since Dec. 31. Micron, the largest U.S. maker of computer-memory chips, gained 12 percent to $9.71 after Vice President Kipp Bedard told investors at a conference that memory-chip prices are starting to rise. Novellus Systems advanced 19 percent to $36.85.

“We’re juggling the fundamental economic prospects with the momentum in the equity market,” said George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm with about $4 billion in assets. “The momentum is pushing for further rises in equity prices, but we remain cautious because we don’t believe there’s a lot of justification for further gains.”

Jobless Claims

Data from the Labor Department showed that initial jobless claims rose by 35,000 to 445,000 in the first week of the year. The median estimate in a Bloomberg News survey called for 410,000 filings. The Commerce Department said in a separate report that retail sales grew 0.6 percent last month, trailing the median forecast of economists surveyed by Bloomberg News for a 0.8 percent rise.

The proportion of investment newsletters that forecast a correction, or 10 percent decline in the U.S. stock market, rose to a two-month high of 25 percent in the week ended Jan. 4, according to Investors Intelligence, the New Rochelle, New York- based firm which has examined the projections since 1963.

Merck & Co. fell the most in the Dow, sliding 8.4 percent to $34.23. Studies of the company’s anti-clotting drug vorapaxar, a product analysts said may generate $5 billion in sales, were halted for patients with a previous stroke, potentially limiting its use.

Supervalu Inc., the Eden Prairie, Minnesota-based grocer, dropped the most in the S&P 500, sinking 15 percent to $7.39 after lowering its fiscal 2011 profit forecast on poor promotional sales and lost food distribution business.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

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

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