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U.S. Stocks Advance to Five-Month High Amid China Easing Bets

U.S. stocks rose, sending the Standard & Poor’s 500 Index to its highest level since July, amid bets that China may act to spur economic growth.

All 10 groups in the S&P 500 advanced as financial, commodity and industrial shares had the biggest gains. Bank of America Corp. (BAC) and Caterpillar Inc. (CAT) rallied at least 2.9 percent. Alcoa Inc. (AA), the first company in the Dow Jones Industrial Average (INDU) to report quarterly results, pared a rally of as much as 4.5 percent. Tiffany (TIF) & Co. tumbled 10 percent after the luxury jewelry retailer reduced its annual earnings forecast.

The S&P 500 climbed 0.9 percent to 1,292.08 at 4 p.m. New York time. The index rose to the highest level since July 29, a week before the U.S. was stripped of its AAA credit rating by S&P. The Dow gained 69.78 points, or 0.6 percent, to 12,462.47. The Russell 2000 Index (RTY) of small companies jumped 1.5 percent, rallying above its average price of the last 200 days.

“Earnings don’t have to knock the ball out of the park to push equities higher,” Jack Ablin, who helps oversee $55 billion as chief investment officer for Chicago-based Harris Private Bank, said in a telephone interview. “Expectations are low.” On the international front, “there’s a growing sense that China will ease policy and, to the extent that Europe can muddle, it’s probably net positive news.”

Stocks rose as a drop in China’s import growth bolstered forecasts for monetary easing. Equities pared gains as Alcoa, the largest U.S. aluminum producer, tumbled from today’s peak. The S&P 500 has ended the earnings season higher 75 percent of the time when Alcoa rises in the session after reporting its results, according to a Bespoke Investment Group study of 34 quarters going back to 2003.

Alcoa’s Results

Alcoa added 0.2 percent to $9.44. Sales rose 6 percent to $5.99 billion, beating estimates by 5.1 percent. It had a loss excluding restructuring costs of 3 cents a share, matching the average projection from 18 estimates compiled by Bloomberg. Aluminum jumped, pacing gains in commodities, after the company also forecast a global production deficit.

The Morgan Stanley Cyclical Index (CYC) of companies most- dependent on economic growth gained 1.7 percent. The Dow Jones Transportation Average added 1.4 percent. The KBW Bank Index rallied 1.9 percent. Bank of America climbed 5.7 percent, the biggest gain in the Dow, to $6.63. Caterpillar, the world’s largest construction and mining-equipment maker, increased 3 percent to $99.96.

BorgWarner Inc. (BWA) rose the most in the S&P 500, soaring 12 percent to $72.25. The maker of turbochargers forecast annual profit that topped analysts’ estimates.

‘Momentum’

“Most companies will surprise on the upside and markets will react positively to that provided that there’s not any further negative news coming from the rest of the world,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “The U.S. economy seems to have momentum.”

The S&P 500 has jumped 18 percent from its 2011 low amid better-than-expected economic data. The rally has brought the index to the top of the trading range it has be stuck in since August.

Eastman Kodak Co. (EK) gained the most in the Russell 2000, advancing 50 percent to 60 cents. The unprofitable 131-year-old imaging company simplified its management structure and created a chief operating office to reduce costs.

Tiffany slumped 10 percent to $59.94. The company, which generates almost half of its sales outside of the U.S., is selling fewer $65,000 diamond necklaces as volatile stock markets prompt European consumers to curb spending. Asian shoppers also are restraining purchases of luxury goods.

Soft Demand

Goodyear Tire & Rubber Co. tumbled 8.3 percent to $14.01. The largest U.S. tiremaker said it’s experiencing softness in global demand. Sales of replacement tires in North America, where Goodyear got 44 percent of its revenue in 2010, fell about 3 percent in last year’s final quarter, Chief Financial Officer Darren Wells said at an investor conference today in Detroit.

Liz Claiborne Inc. (LIZ) tumbled 13 percent, the biggest drop since Aug. 8, to $8.64. The apparel maker cut its profit forecast for the coming year and said its chief financial officer is departing.

Rallying stocks have done little to entice professional money managers back to U.S. equities. A gauge of hedge-fund bullishness measuring the proportion of bets that shares will rise climbed to 44.5 last week from 43.9 at the end of 2011, holding close to the lowest level since 2009, according to International Strategy & Investment Group. Compared with the price of the S&P 500, managers’ so-called net exposure is close to the lowest since June 2008, the data show.

Cutting Equities

Speculators have been cutting equities since the index peaked in February 2011 at 54.2, concerned Europe’s credit crisis will spread and curb global economic growth. They stayed bearish after October when the S&P 500 began a 17 percent rally that has restored $2 trillion to the value of American equities.

Investors have struggled to profit amid record stock market volatility. Hedge funds, largely unregulated investment vehicles that aim to make money whether markets rise or fall, lost 4.9 percent last year as fear that the European sovereign-debt crisis would spread deterred them from buying risky assets including stocks, according to the Bloomberg aggregate hedge- fund index.

“Hedge funds have made massive mistakes,” George Feiger, chief executive officer of Contango Capital Advisors Inc., the San Francisco-based wealth management arm of Zions Bancorporation, said in a telephone interview on Jan. 6. He manages $3.3 billion at Contango and Western National Trust Co. “We are less and less willing to invest with these people because at the point when you need them the most, they’re worth the least.”

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

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

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