U.S. Stocks Gain, Reversing Loss in Last Hour, on China Report

Stocks Sink on Greek Debt Concern; Treasuries Trim Early Ral
Traders work at the New York Stock Exchange on Sept. 12, 2011. Photographer: Scott Eells/Bloomberg

U.S. stocks advanced, erasing earlier losses, as speculation that China may invest in Italy triggered a rally that lifted the Dow Jones Industrial Average more than 200 points in the last 45 minutes of trading.

Nine out of 10 groups in the Standard & Poor’s 500 Index rallied, led by technology and financial shares. Bank of America Corp., the biggest U.S. lender by assets, gained 1 percent on plans to eliminate 30,000 jobs in the next few years. NetLogic Microsystems Inc. surged 51 percent after Broadcom Corp. agreed to buy the semiconductor company for $3.7 billion in cash.

The S&P 500 advanced 0.7 percent to 1,162.27 at 4 p.m. in New York, after retreating 1.6 percent earlier. The Dow increased 68.99 points, or 0.6 percent, to 11,061.12.

“If China is willing to invest in Italy, maybe that’s the solution,” Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, New York, said in a telephone interview. “It introduces a new source of capital that people weren’t considering outside Europe. Maybe the other countries are going to be able to find capital on their own. That’s what we need to see to shore up these countries.”

Stocks rebounded as the Financial Times said Italian officials are trying to convince China to purchase its bonds, without identifying its sources. An Italian government official, who declined to be identified, told Bloomberg News that Italian officials have held talks with Chinese counterparts about potential investments in the euro region’s third-largest economy.

Not The Focus

The purchase of Italian bonds by China was not the focus of the talks, which took place in the past few weeks, the official said on condition of anonymity. A spokesman for Italian Finance Minister Giulio Tremonti declined to comment.

“The fact that the Chinese are coming in is comforting,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees $883 billion, said in a telephone interview. “The question will be: Is this enough for the depths of the endemic problems facing the European Union? Until we see an easing in credit markets, it’s going to be difficult to take advantage of good valuations.”

Stocks fell earlier today amid concern Greece is moving closer to a debt default. Moody’s Investors Service may cut the ratings of BNP Paribas SA, Societe Generale SA and Credit Agricole SA this week because of their Greek holdings, two people with knowledge of the matter said.

Between April 29 and Aug. 8, the S&P 500 fell 18 percent on concern about Europe’s debt crisis and an economic slowdown. It closed as low as 1,119.46 on Aug. 8, within 29 points of a bear market, or a 20 percent drop.

3M, Sears

The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 0.4 percent, paring a decline of as much as 2.8 percent. 3M Co., the maker of Post-It Notes, gained 2.1 percent to $78.22. Sears Holdings Corp. added 1.3 percent to $54.24.

Bank of America increased 1 percent to $7.05. The lender will eliminate 30,000 jobs in the next few years as part of Chief Executive Officer Brian T. Moynihan’s plan to bolster profit and the company’s stock.

The reductions, equal to about 10 percent of the staff, are part of an overhaul that aims to remove about $5 billion in annual costs by the end of 2013. Moynihan’s plan, dubbed Project New BAC, included a management shakeup last week that elevated Thomas K. Montag and David Darnell to co-chief operating officers and left Sallie Krawcheck and Joe Price without jobs.

NetLogic soared 51 percent to $48.12. Shareholders will get $50 a share. That’s 57 percent more than Santa Clara, California-based NetLogic’s closing price on Sept. 9.

Valuations Are Attractive

Pacific Investment Management Co.’s Neel Kashkari said investors should buy equities because valuations, income growth and dividends show the asset class is attractive.

The S&P 500’s price-earnings ratio sank to a 28-month low of 12.2 last month, and then recovered to 12.5, according to data compiled by Bloomberg. The inverse of that multiple, known as the earnings yield, shows income represents 8 percent of the measure’s price, or 6.1 percentage points more than the rate on 10-year Treasuries. That’s the biggest gap since 2009, when the level was the highest in Bloomberg data going back to 1962. The dividend payout is exceeding bonds for the second period since the 1950s.

“Equities offer returns in three different ways: multiples can expand, earnings can grow and through dividends,” Kashkari, the head of global equities at Pimco, which manages about $1.3 trillion in assets, said in an interview on Bloomberg Television’s “InBusiness” with Margaret Brennan. “On all three factors, equities look very attractive.”

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