Dow Rises to Highest Level Since 2007 on Manufacturing

U.S. stocks rose, sending the Dow Jones Industrial Average to its highest level since December 2007, on stronger-than-forecast growth in manufacturing.

All 10 groups in the Standard & Poor’s 500 Index advanced. Freeport-McMoRan Copper & Gold Inc. (FCX) and Alpha Natural Resources Inc. (ANR) added more than 1.7 percent, pacing gains among commodity shares. Financial companies rose as Bank of America Corp. (BAC) and Morgan Stanley (MS) climbed at least 0.9 percent. Avon Products Inc. (AVP) jumped 17 percent after Coty Inc. sought to acquire the door-to- door cosmetics seller.

The S&P 500 rose 0.8 percent to 1,419.04 at 4 p.m. New York time. The index on March 30 completed its biggest first-quarter rally since 1998. The Dow gained 52.45 points, or 0.4 percent, to 13,264.49 today. About 6.6 billion shares changed hands on U.S. exchanges, 3.6 percent below the three-month average.

“We have solid gains that are likely to be sustained, maybe with some slight pullbacks over coming months,” Eric Teal, Raleigh, North Carolina-based chief investment officer at First Citizens Bancshares Inc., which oversees $4.5 billion, said in a telephone interview. “The manufacturing data continue to show signs of improvement. It supports our modest pro- cyclical position.”

Equities gained as manufacturing in the U.S. expanded at a faster pace than forecast in March, a sign that the industry is weathering slower global growth. The Institute for Supply Management’s factory index rose to 53.4 from 52.4 a month earlier, the Tempe, Arizona-based group’s data showed. Fifty is the dividing line between growth and contraction. Economists surveyed by Bloomberg News projected the gauge would climb to 53.

Construction Spending

A separate report showed construction spending decreased 1.1 percent in February, compared with the median economist forecast for growth of 0.6 percent.

The S&P 500 rose 12 percent in the first quarter as economic data surpassed estimates and investors speculated that the euro area would contain its sovereign-debt crisis. The benchmark measure advanced 3.1 percent in March, its fourth- straight monthly increase for the gauge’s longest streak of monthly gains since 2009, as Federal Reserve Chairman Ben S. Bernanke said he will keep stimulating the economy and Europe agreed to increase rescue funds.

“We don’t see any big negatives that would cause people to run for the hills,” Joseph Keating, who helps oversee $1 billion as chief investment officer at CenterState Wealth Management in Birmingham, Alabama, said in a telephone interview. “Easy monetary policies are in place around the globe. Investor sentiment has picked up.”

Commodity Producers, Banks

Commodity shares rose the most among 10 groups in the S&P 500 after a gauge of manufacturing in China signaled stronger demand. A Purchasing Managers’ Index touched a one-year high of 53.1 last month, China’s logistics federation and the National Bureau of Statistics said. Readings above 50 signal growth.

Freeport-McMoRan jumped 2.8 percent to $39.11. Alpha Natural, a coal producer, rallied 1.7 percent to $15.47. Alcoa Inc. (AA) added 1.5 percent, the most in the Dow, to $10.17, while Chevron Corp. (CVX) increased 1 percent to $108.30.

Investors snapped up shares of companies most tied to the economy. The Morgan Stanley Cyclical Index (CYC) rallied 0.8 percent. The Dow Jones Transportation Average, a proxy for economic growth, climbed 1 percent.

Financial shares advanced 0.8 percent as a group in the S&P 500. Bank of America added 1.2 percent to $9.68, while Morgan Stanley increased 0.9 percent to $19.81.

Non-Binding Proposal

Avon surged 17 percent, the most since July 2008, to $22.70. Coty said it has submitted a non-binding proposal to acquire the door-to-door cosmetics seller for $23.25 a share in cash. The purchase price represents a premium of about 27 percent over the three-month average weighted price for Avon shares, Coty said.

Apple Inc. (AAPL) advanced 3.2 percent to $618.63 after its new iPad was named the best tablet computer in a ranking. Consumer Reports said on its website that the new iPad’s high-resolution screen provides the best detail and color accuracy of all tablets it has seen, two weeks after the magazine said the device runs “significantly hotter” than previous models.

Hartford Financial Services Group Inc. (HIG) rose 4.1 percent, the third-biggest gain in the S&P 500, to $21.95. The insurer being pressured by investor John Paulson to break up said it will pay about $2.43 billion to buy back debt and warrants issued to Allianz SE.

Abercrombie & Fitch Co. (ANF) climbed 4.1 percent to $51.62, the most since Feb. 15. The teen-clothing retailer was raised to buy from hold at Brean Murray Carret & Co.

‘Material Weakness’

Groupon Inc. tumbled 17 percent to $15.28 after the largest provider of daily deals online reported a “material weakness” in its financial controls and said fourth-quarter revenue was lower than it had stated because of higher refunds to merchants.

The S&P’s first-quarter rally sent U.S. stocks above gold by the most in more than a decade, a sign of growing investor confidence in corporate profits as analysts raise earnings estimates for the first time this year.

The S&P 500’s rise of 12 percent was 5.3 percentage points more than gold for the widest gap to start a year since 1999, according to data compiled by Bloomberg. The S&P GSCI Total Return Index (SPGSCITR) of 24 commodities gained 5.9 percent over the three months, while Treasuries slipped 1.3 percent, trailing equities by the most since 2009. Corporate bonds increased 2.4 percent and the dollar fell 1.6 percent.

Gaining Traction

Stocks are diverging from defensive investments such as gold as appetite for risk increases. While bulls see it as a sign profits and the economy are gaining traction, bears point to Federal Reserve Chairman Ben S. Bernanke’s warnings that more stimulus may be needed as evidence that the rally has gone too far. To money manager Laszlo Birinyi, slower gains in precious metals signal pessimism is starting to fade.

“The problem with gold now is that people are starting to accept the economy recovery,” Birinyi, president of Westport, Connecticut-based Birinyi Associates Inc., said in a March 29 phone interview. Even as confidence builds, “people are still too focused on the concerns and the fact that this looks similar to last year, where everyone said sell in May and go away,” he said. “That’s exactly the kind of thing we look for.”

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; 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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