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U.S. Stocks Rise as Mergers Help Offset Worries About Economy

Traders work on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg
Traders work on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg

U.S. stocks rose, rebounding from six weeks of losses, as a pickup in takeovers and the cheapest valuations in almost a year helped offset concerns about a slowdown in the economic recovery.

Transatlantic Holdings Inc., the reinsurer formerly owned by American International Group Inc., surged 9.5 percent after agreeing to merge with Switzerland’s Allied World Assurance Company Holdings AG. Timberland Co. rallied 44 percent as VF Corp. said it will buy the footwear maker for $1.8 billion. Halliburton Co. and Freeport-McMoRan Copper & Gold Inc. slumped at least 1.2 percent amid falling commodity prices.

The Standard & Poor’s 500 Index rose 0.1 percent to 1,271.83 at 4 p.m. in New York after dropping as much as 0.4 percent. The Dow Jones Industrial Average climbed 1.06 points, or less than 0.1 percent, to 11,952.97 after sliding for six straight weeks, the longest stretch since 2002. The Russell 2000 Index of small companies slipped 0.3 percent to 777.20 after erasing its gain for the year on June 10. About three stocks fell for every two that rose on U.S. exchanges.

“Corporate managers are more positive on their prospects than investors, which we see expressed in the deals today,” said Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust, which manages $6.5 billion. “People came in this morning and saw these good deals,” he said.

More than $1 trillion has been erased from U.S. equity markets since the S&P 500’s peak on April 29, leaving the measure trading at about 12.8 times its companies’ estimated earnings for 2011. That’s the cheapest valuation since August.

6.8% Decline

The S&P 500 fell 6.8 percent from the end of April through June 10 as sales of existing homes unexpectedly declined, the unemployment rate rose and concern about the European debt crisis increased. General Electric Co., the benchmark’s fifth-largest company by weighting, retreated 15 percent from this year’s high on Feb. 17. Bank of America Corp. plummeted 27 percent in the same period.

Transatlantic rallied 9.5 percent to $48.19 after agreeing to merge with Allied World Assurance in a $3.2 billion deal that creates a reinsurer with operations in 18 countries. Allied will exchange 0.88 of a share for each Transatlantic share to create TransAllied Group Holdings AG, with Transatlantic’s shareholders owning about 58 percent of the combined company, the insurers said yesterday in a statement.

Timberland climbed 44 percent to $43.20 after agreeing to be bought for $43 a share. VF, the world’s largest apparel maker, said the boards of both companies voted to approve the deal and its stock advanced 10 percent to $101.01.

Unidentified Bidder

Graham Packaging Co. jumped 17 percent to $25.63. The maker of plastic containers controlled by Blackstone Group LP said it has received an unsolicited proposal from an unidentified bidder to acquire all of its shares for $25 a share in cash. The company agreed to be bought by Silgan Holdings Inc. in April for about $4.1 billion including debt.

Ness Technologies Inc. jumped 14 percent to $7.60 after the Israeli computer-services provider agreed to be acquired by Citi Venture Capital International for $307 million in cash.

About $428.3 billion in mergers and acquisitions targeting U.S. companies have been announced so far this year, a 24 percent increase compared with the same period last year, according to data compiled by Bloomberg. More than two dozen deals totaling $6.9 billion were announced today.

Energy Stocks

Energy shares fell 1.4 percent, the most among 10 S&P 500 industry groups. Materials producers lost 0.6 percent, the second-most in the benchmark index.

Crude oil for July delivery fell 2 percent to $97.30 a barrel on the New York Mercantile Exchange, after declining to $96.13, the lowest intraday level since May 20. The Thomson Reuters/Jefferies CRB Index of commodities slipped 1 percent.

Halliburton, the world’s second-largest oilfield services provider, retreated 2.4 percent to $46.86. Freeport, the world’s largest publicly traded copper producer, slipped 1.2 percent to $48.33.

Stocks retreated before rebounding and oil extended losses as S&P cut Greece’s credit rating to the world’s lowest debt grade. Greece had its credit rating cut by three levels to CCC and the rating company said today the nation is “increasingly likely to restructure its debt.” A restructuring would likely “result in one or more defaults under our criteria,” S&P said. The downgrade follows Moody’s Investors Service’s decision this month to grade Greece only one level higher.

European Central Bank President Jean-Claude Trichet and German Finance Minister Wolfgang Schaeuble remain at odds over investors’ role in the second Greek rescue in 14 months. The dispute turns on how politicians make good on a promise to push creditors to pay some of the cost, a step that Trichet said on June 9 could be an “enormous mistake.”

Special Meeting

Finance ministers have called a special meeting tomorrow as they try to avoid what European Economic and Monetary Affairs Commissioner Olli Rehn called a “Lehman Brothers catastrophe on European soil.”

New York University professor Nouriel Roubini warned in an interview that a “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy.

A Commerce Department report tomorrow may show U.S. retail sales fell for the first time in 11 months in May. A 0.5 percent drop in purchases would follow a 0.5 percent gain in April, according to the median forecast of 62 economists surveyed by Bloomberg. Other data might show inflation eased.

“We’re between data points as we approach a technically important level of support in the 1,250 to 1,260 range on the S&P 500,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “Investors are testing this channel of support for the market place, and we’ve been looking at that level as a place where we could get a relief rally if it holds. Below this level we may go into a void down to the 1,200 range.”

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