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U.S. Stocks Gain Before Fed Policy Meeting, Midterm Elections

U.S. stocks rose, sending benchmark indexes to six-month highs, as investors awaited the Federal Reserve’s plans to bolster the recovery and an election outcome that may hand Democrats their biggest defeat in seven decades.

MasterCard Inc. rallied 3 percent as third-quarter profit exceeded most Wall Street forecasts after more consumers paid with credit and debit cards. U.S. Steel Corp. advanced 3.6 percent after being added to UBS AG’s short-term “buy” list as the price for the metal may rise. Dollar Thrifty Automotive Group Inc. increased 3 percent as earnings topped predictions. Home Depot Inc. added 2.6 percent, the biggest gain in the Dow Jones Industrial Average.

The S&P 500 added 0.8 percent to 1,193.57 at 4 p.m. in New York, the highest since May 3. The benchmark gauge yesterday recovered from a late-day tumble on speculation the Fed will pump more cash into the economy to support the expansion. The Dow climbed 64.10 points, or 0.6 percent, to 11,188.72. The 30-stock index earlier touched 11,219.52, the highest since September 2008.

“About $500 billion of Fed asset purchases are priced in by the market; if it’s smaller then there will be disappointment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “But we have to keep in mind that the reason the Fed would be doing less is because the economy is getting better.”

The S&P 500 has rallied 14 percent since Bernanke indicated in August that he was considering pumping more cash into financial markets. Policy makers meet today and tomorrow to consider stimulating the world’s largest economy through an asset-purchase technique known as quantitative easing. The central bank is likely to announce a plan to purchase at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

Mid-Term Elections

Republicans are poised to retake the U.S. House and narrow Democrats’ margin in the Senate, according to the Rothenberg Political Report, delivering a rebuke to President Barack Obama’s party in a campaign shaped by voter anxiety over jobs and the economy.

The S&P 500 has surged 48 percent on average starting in the second year of each U.S. presidential term, measured from its lowest level through the high the next year, according to data going back to 1928 compiled by Bloomberg. That compares with trough-to-peak gains of 38 percent in other years.

The index has advanced 15 percent on average in years when there was a Democratic president and Republican majority in Congress, the most of any combination, according to Strategas Research Partners.

‘Positive for Investors’

“A Republican takeover of the House and gains in the Senate may slow legislation that is perceived as anti-business, and that’s a positive for investors,” said Greenhaus. “There will be a significant sell-off if substantial Republican gains in the House do not materialize.”

The S&P 500 gained 6.7 percent in the 12 months after the 2006 midterm election, when Republicans and President George W. Bush lost control of both houses of Congress. In the 1994 congressional elections under President Bill Clinton, Democrats gave up their majority in the House and Senate. That preceded the S&P 500’s 34 percent surge in 1995, the biggest in 37 years, data compiled by Bloomberg show.

“If we actually have gridlock, there will initially be this very short-term view that this is okay, and then people will begin to realize that further delay in addressing both our intermediate and long-term problems is very bad for America,” said Ralph Schlosstein, the chief executive officer of Evercore Partners Inc., the investment bank founded by former U.S. Deputy Treasury Secretary Roger Altman. “Historically we’ve had gridlock when the economy and the markets have been pretty good. We have some very serious short-term and long-term problems in this country.”

Republican Gains

The Rothenberg Political Report predicts that Republicans, who need a net gain of 39 seats to take control of the House, may win 55 to 65 seats in the House, while the Cook Political Report puts Republican House gains at 50 to 60 seats, possibly higher. The Washington-based reports see Democrats losing six to eight seats in the Senate, where the Republicans need 10 seats for a majority.

MasterCard, the world’s second-biggest payments network, jumped 3 percent to $246.09 after posting third-quarter profit of $3.94 a share. The average estimate of 29 analysts surveyed by Bloomberg was for earnings of $3.54 a share.

Worldwide spending on MasterCard cards climbed 7.9 percent to $514 billion based on local currencies while spending by consumers outside their home countries surged 15 percent. Processed transactions rose 0.6 percent to 5.8 billion.

American Express Co., the biggest U.S. credit-card issuer by purchases, gained 2 percent to $42.39.

Dollar Thrifty Earnings

Dollar Thrifty, which is being acquired by Avis Budget Group Inc., rose 3 percent to $47.13 after reporting a third-quarter profit excluding some items of $1.51 a share. The average estimate of analysts surveyed by Bloomberg was for a profit of $1.48 a share.

Harman International Industries Inc. increased the most in the S&P 500, rallying 12 percent to $37.58. The maker of audio systems for homes and vehicles posted first-quarter profit excluding some items of 35 cents a share, beating the average analyst estimate by 32 percent, according to Bloomberg data.

Earnings-per share have topped estimates at 79 percent of the 345 companies in the S&P 500 that have posted results since Oct. 7, according to data compiled by Bloomberg.

Rising Prices

U.S. Steel, the country’s largest producer of the metal by volume, gained 3.6 percent to $44.85 after it was given a short-term “buy” recommendation by UBS, which cited the prospect of rising steel prices.

A measure of consumer discretionary stocks climbed 1.1 percent as Home Depot, the largest-home improvement retailer, rose 2.6 percent to $31.51.

Archer-Daniels Midland Co. slid 6.6 percent to $31.19, the biggest decline in the S&P 500. The world’s largest grain processor reported first-quarter profit fell more than analysts estimated after a drought cut crops in the Black Sea region.

Art Technology Group Inc. surged 45 percent to $5.96 for the largest advance in Russell 2000 Index. Oracle Corp. agreed to buy the Internet relationship management company for about $1 billion in cash, or $6 a share.

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