U.S. Stocks Advance for Week as Investors Watch Budget Talks

U.S. stocks climbed this week, sending the Standard & Poor’s 500 Index to its biggest advance in a month, as reports signaled stronger economic growth and investors weighed prospects for a budget deal in Washington.

The S&P 500 pared its rally on the final day of the week as budget talks stalled. Bank of America Corp. (BAC) jumped 6.7 percent, pacing gains in financial stocks. NYSE Euronext surged 38 percent after IntercontinentalExchange Inc. (ICE) agreed to buy the owner of the New York Stock Exchange for $8.2 billion. Herbalife Ltd. tumbled 38 percent after hedge fund manager Bill Ackman said he is shorting the stock.

The S&P 500 climbed 1.2 percent this week to 1,430.15, the biggest rally since Nov. 23. The Dow Jones Industrial Average added 55.83 points, or 0.4 percent, to 13,190.84.

“All the drama obviously continues to be centered around what is happening or not happening in Washington,” Eric Wiegand, a New York-based senior fund manager at U.S. Bank Wealth Management, which oversees $111 billion, said by telephone. “We’re hopeful, but not completely optimistic, because we do think there’s a fairly meaningful gulf between the parties.”

The S&P 500 rose earlier in the week as House Speaker John Boehner said he expects to keep working on a budget plan with President Barack Obama and reports on industrial production and economic growth topped forecasts. The index sank 0.9 percent on Dec. 21 as Boehner canceled a vote on a plan to allow higher tax rates on annual income above $1 million, yielding to resistance within his own party and spurring concern that Congress will fail to reach a budget compromise.

Budget Talks

House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach agreement to avert more than $600 billion of tax increases and spending cuts set to take effect in January. The Congressional Budget Office has said that a failure to avert those changes, known as the fiscal cliff, will probably lead to a recession in the first half of 2013.

The S&P 500 has lost 0.7 percent so far this quarter as Obama and House Republicans differed over how to avoid the automatic deficit-reduction measures. The benchmark equity gauge is still up 14 percent for the year, heading toward its biggest annual gain since 2009.

Improving Economy

Stocks also advanced after third-quarter economic growth was revised higher. The 3.1 percent growth in gross domestic product exceeded the highest projection in a Bloomberg survey. The median estimate of economists called for a 2.8 percent advance. Industrial production rose 1.1 percent in November, more than three times as fast as economists estimated.

Other reports also signaled expansion in the world’s largest economy. The Federal Reserve Bank of Philadelphia’s general economic index increased to 8.1 in December from minus 10.7 a month earlier. A reading of zero is the dividing line between expansion and contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Sales of previously owned homes rose more than forecast in November to reach a three-year high as lower borrowing costs sustained the U.S. housing rebound, the National Association of Realtors reported. The S&P Supercomposite Homebuilding Index (S15HOME) gained 4.2 percent this week.

“We’re actually seeing some improvement in the economic data,” Wiegand said. “Talking to clients who are business owners, they may not have confidence in creating their business plans for the next six months. But for the next 12 or 24, there’s a degree of optimism.”

Banks Advance

Bank of America climbed 6.7 percent, the biggest rally in the Dow, to $11.29. Financial stocks posted the largest gain out of 10 groups, climbing 3.1 percent. Goldman Sachs Group Inc. (GS) jumped 7.6 percent to $128.44 for its biggest gain since September. JPMorgan Chase & Co. (JPM) rose 2.8 percent to $44.

NYSE Euronext (NYX) surged 38 percent this week to $32.25. IntercontinentalExchange, the 12-year-old energy and commodity futures bourse, agreed to acquire the company for cash and stock worth $8.2 billion. Both boards approved the proposal and the companies expect to complete the transaction in the second half of 2013. IntercontinentalExchange slipped 1.3 percent to $126.25.

Jabil Circuit Inc. (JBL) rallied 11 percent to $19.39. The electronics manufacturer reported first-quarter earnings were 61 cents a share, exceeding the average analyst estimate by 5 cents. Revenue in the same period was $4.6 billion, higher than the $4.4 billion projected by analysts.

Knight Takeover

Knight Capital Group Inc. (KCG) increased 9 percent to $3.53. The market-maker pushed to the brink of bankruptcy in August agreed to a takeover by Getco LLC. Chicago-based high-frequency trader Getco offered $3.75 a share for Knight, one-third of it in stock, for a total value of $1.4 billion.

Herbalife Ltd. (HLF) plunged 38 percent to $27.27, the lowest level in more than two years. The maker of weight-loss and nutritional supplements tumbled after Ackman said he’s more certain about his short position on the company than he’s ever been in an investment, saying the company is a pyramid scheme. Herbalife Chief Executive Officer Michael O. Johnson said Ackman’s allegation is “bogus.”

In a short sale, investors sell borrowed stock in the hopes that it will fall and they’ll profit by repaying the loan with cheaper shares.

Merck & Co. lost 4.6 percent to $41.52 for the biggest retreat in the Dow. The company won’t seek U.S. marketing approval for its good-cholesterol drug Tredaptive after a key study showed it ineffective and potentially harmful.

Electronic Arts Inc. (EA), publisher of “Medal of Honor,” fell 9.2 percent to $13.89. Makers and retailers of video games retreated amid growing pressure from Washington and advocacy groups concerned about possible links between violent games and tragedies like the Newtown, Connecticut, school massacre. A bill introduced this week directs the National Academy of Sciences to examine whether violent games and programs lead children to act aggressively.

Take-Two Interactive Software Inc. (TTWO), the maker of “Grand Theft Auto,” lost 13 percent to $11.35. GameStop Corp. (GME), the video-game chain, slid 7.1 percent to $25.57.

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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