U.S. Stocks Gain as Bernanke Says Fed Prepared to Act

U.S. stocks rose, erasing earlier losses, as Federal Reserve Chairman Ben S. Bernanke told senators the central bank is prepared to act to boost growth if the labor market doesn’t improve.

All 10 groups in the Standard & Poor’s 500 Index rose. Walt Disney Co. (DIS) rallied 3.1 percent to a record after Bank of America Corp. analysts raised the world’s largest entertainment company to a buy. Coca-Cola Co. (KO) advanced 1.6 percent after earnings beat projections. Mattel Inc. jumped 9.7 percent after second-quarter profit exceeded the average analyst estimate.

The S&P 500 added 0.7 percent to 1,363.67 at 4 p.m. in New York after losing as much as 0.6 percent. The Dow Jones Industrial Average increased 78.33 points, 0.6 percent, to 12,805.54. Trading of S&P 500 stocks was 4.6 percent below the average level at this time of day over the past three months.

“The stock market has faith in the Fed,” said Jack Ablin, chief investment officer at BMO Harris Private Bank in Chicago, which oversees about $60 billion of assets. “With all of the headlines, and all of the slowing, investors still believe the Fed will do anything in its power to keep the ship afloat.”

Stocks headed lower in the first hour of trading as Bernanke’s prepared testimony to Congress cited no specific details on the central bank’s plans, disappointing investors anticipating a more aggressive approach to helping the economy. Equities recovered as Bernanke’s responses to senators boosted confidence that he’s prepared to take action.

Economy Watch

The S&P 500 slipped in seven of the previous eight sessions and is down 3.9 percent from a four-year high in April as economic data trailed estimates and investors braced for the first decline in quarterly profits since 2009.

The Fed Chairman’s testimony follows data yesterday showing a contraction in June retail sales and a report today that the cost of living in the U.S. was little changed in June, a sign inflation may stay subdued.

The Citigroup Economic Surprise Index for the U.S., which measures how much data from the past three months is beating or missing the median estimates in Bloomberg surveys, is at minus 62.30, near the almost 11-month low of minus 64.9 reached last week. The gauge peaked at 91.9 in January.

Bernanke told lawmakers that progress in reducing unemployment is likely to be “frustratingly slow” and repeated that the central bank is ready to take further action to boost the recovery, while refraining from pledging any new policies.

Earnings Season

“If after earnings season we see companies decide to make wholesale staff reductions because of lower top line sales growth, that could put the job market at risk, and then the Fed would act very promptly,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Atlanta which oversees about $47 billion, said by phone.

Profits beat estimates at 35 of the 49 companies in the S&P 500 that have reported quarterly results so far, data compiled by Bloomberg showed. Earnings are down 3 percent for the group and analysts forecast profits for the entire S&P 500 to decrease 2.1 percent.

Health-care, raw-material, telephone stocks and energy led gains among the 10 main S&P 500 industries by rising at least 1.1 percent.

Walt Disney rallied 3.1 percent to $49.35, its highest price ever, helping lead consumer discretionary stocks higher. The company was raised to buy from neutral by Bank of America, which cited a boost to 2012 earnings from the film “Marvel’s The Avengers” and a contribution to profit next year from the opening of Cars Land.

Coca-Cola Profits

Coca-Cola advanced 1.6 percent to $77.69. The world’s largest soft-drink maker reported second-quarter profit that topped analysts’ estimates, helped by pricing increases in North America late last year.

Mattel (MAT) jumped 9.7 percent to $34.05 for the biggest gain in the S&P 500. The world’s largest toymaker surged the most in more than three years as price increases helped second-quarter profit and revenue top analyst estimates.

Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier, rose to the highest level since September after Credit Suisse Group AG boosted its price target for the stock, citing its network upgrade and cost management. Sprint advanced 5.5 percent to $3.65.

Mosaic Co. (MOS) climbed 5.1 percent to $58.21. The fertilizer producer doubled its dividend and posted fourth-quarter earnings and revenue that beat analysts’ estimates after an extended spring season.

State Street Corp. (STT) slipped 6.4 percent, the most in the S&P 500 (SPX), to $41.33. The third-largest custody bank agreed to buy the hedge-fund administration unit of Goldman Sachs Group Inc. to boost growth.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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