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U.S. Stocks Advance Amid Speculation Over Fed Decision

U.S. stocks rose, after yesterday’s drop in the Standard & Poor’s 500 Index, amid speculation the Federal Reserve will act to stimulate the economy.

Alcoa Inc. (AA) and Caterpillar Inc. (CAT) climbed at least 1.7 percent, pacing gains among the biggest companies. Eight out of 10 groups in the S&P 500 rose. Morgan Stanley (MS) jumped 3.9 percent after saying it will purchase the rest of its brokerage joint venture from Citigroup Inc. (C) Ralph Lauren Corp. (RL) led declines among luxury goods companies as Burberry Group Plc said profit will be at the lower end of estimates

The S&P 500 added 0.3 percent to 1,433.56 at 4 p.m. in New York. The Dow Jones Industrial Average gained 69.07 points, or 0.5 percent, to 13,323.36 today. Volume for exchange-listed stocks in the U.S. was 5.9 billion shares, or almost in line with the three-month average.

“The market is anticipating that there will be some stimulus move on the part of the Fed,” John Praveen, chief investment strategist at Prudential International Investments Advisers, a unit of Newark, New Jersey-based Prudential Financial Inc., which manages about $960 billion, said by telephone. “The market is grinding higher on liquidity because of what central banks have done and on hopes of further stimulus from the Fed and positive moves from European policy makers.”

The S&P 500 is less than 10 percent from its record closing high after rising 14 percent this year. The equities index is 20 percent above its level on Sept. 15, 2008, the first trading day after Lehman Brothers Holdings Inc. filed the world’s biggest bankruptcy and prompted a 46 percent drop through March 9, 2009. The benchmark gauge fell 0.6 percent yesterday as concern Greece’s debt crisis will worsen overshadowed speculation that central banks will take steps to support the global economy.

Fed Meeting

Equities advanced today ahead of a two-day meeting starting tomorrow in which the Federal Open Market Committee will discuss additional measures to stimulate the U.S. economy. Fed Chairman Ben S. Bernanke said on Aug. 31 he wouldn’t rule out steps to lower an unemployment rate he described as a “grave concern.”

A report from the Commerce Department showed that the country’s trade deficit widened in July for the first time in four months as the global economic slowdown reduced demand for American-made goods. The National Federation of Independent Business’s optimism index rose last month to 92.9 from a nine- month low of 91.2 in July, indicating confidence among small businesses in the U.S. climbed in August as more companies anticipated a pickup in hiring and sales.

U.S. equities also rose as Germany’s Federal Constitutional Court said it will issue a ruling tomorrow on whether to allow the country to ratify the 500 billion-euro ($640 billion) European Stability Mechanism. The court rejected an argument by lawmaker Peter Gauweiler that it delay the decision after the European Central Bank pledged unlimited funds last week to buy government bonds.

Since 2008

The S&P 500 climbed to its highest level since 2008 on Sept. 6 as the ECB approved the bond-buying program to lower borrowing costs for the most-indebted euro-area states.

“Everybody is waiting to see what the Fed and German court will do,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which has about $4 billion in assets, said by telephone. “Europe keeps on walking up to the cliff and stepping back just enough not to fall off. Ultimately, through small steps, they’ll come to a solution to this crisis that they’re having.”

Alcoa, Caterpillar

Alcoa, the largest U.S. producer of aluminum, jumped 3.1 percent to $9.33, its highest level since May. Caterpillar, the world’s biggest maker of construction and mining equipment, rallied 1.7 percent to $88.60. Cliffs Natural Resources Inc. (CLF), the largest iron-ore producer in the U.S., added 6.4 percent to $41.68.

Energy companies jumped the most in the S&P 500’s 10 groups, rising 0.9 percent, followed by financial and industrial stocks. The Morgan Stanley Cyclical Index (CYC) rallied 1 percent as investors bought shares of companies most tied to economic growth. The gauge is up 14 percent from its low this year in June.

Morgan Stanley will purchase 14 percent of its brokerage joint venture from Citigroup at a price that values the total unit at $13.5 billion -- or about 40 percent less than Citigroup’s earlier estimate. Citigroup expects the sale to result in a $2.9 billion charge in the third quarter.

Morgan Stanley climbed 3.9 percent to $17.25, while Citigroup advanced 2.6 percent to $32.66. Diversified financial companies posted the biggest gain out of 24 groups in the S&P 500, rising 1.7 percent. Bank of America Corp. (BAC) jumped 5.2 percent to $9.03, the highest since April.

Green Mountain

Green Mountain Coffee Roasters Inc. (GMCR) jumped 5.9 percent to $32.16. Luigi Lavazza SpA said in a filing after the market closed yesterday that it increased its stake to 6.8 percent. Lavazza owned 5 percent of the maker of Keurig brewers and single-serve pods as of Feb. 24, data compiled by Bloomberg show.

Legg Mason Inc. (LM), the money manager reeling from 19 straight quarters of client redemptions, jumped 5.4 percent to $26.85. The Baltimore-based company said today in a statement that Mark R. Fetting will step down as chairman and chief executive officer on Oct. 1, two months before a standstill agreement with activist investor Nelson Peltz expires.

Ralph Lauren lost 2.6 percent to $156.22, while Tiffany & Co. (TIF) erased 1.2 percent to $62.26. London-based Burberry said full-year profit will be at the lower end of analyst estimates after sales growth slowed. Coach Inc. (COH) fell 1.8 percent to $61.48 after Brean Murray Carret & Co. lowered its rating on the largest U.S. luxury handbag maker to hold from buy.

Airlines Slip

Airline stocks fell, sending the Bloomberg U.S. Airlines Index 1.4 percent lower. Dahlman Rose & Co.’s Helane Becker cut her estimates for third-quarter sales to reflect higher jet-fuel costs and “cautious” expectations for traffic this month. U.S. Airways Group Inc. lost 3.2 percent to $11.62, while Southwest Airlines Co. (LUV) slid 2.2 percent to $8.95.

Moody’s Investors Service, which placed a negative outlook on the U.S.’s Aaa grade in August, said in a statement today that the nation’s rating would likely be cut to Aa1 if negotiations between lawmakers fail to produce policies that reduce the percentage of debt to gross domestic product.

Goldman Sachs Group Inc.’s David Kostin said yesterday a deal to head off automatic tax increases and spending cuts at the start of next year may be “messy” and could hurt stocks. The so-called fiscal cliff “is unlikely to be resolved in a smooth fashion, and probably will be resolved in a messy way,” Kostin, the New York-based firm’s chief equity strategist, said yesterday at a conference in San Diego sponsored by the Insured Retirement Institute.

The benchmark gauge for U.S. equities slumped within 1 percent of a bear market from April through October last year as S&P stripped the U.S. of its AAA credit rating.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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