Stocks Jump on Construction, Home-Sales Data

U.S. stocks closed sharply higher Monday, sending the S&P 500 index above the 900 level and driving the market further above the bear-market lows of early March. Data showing increases in construction spending and pending home sales provided fuel for Monday's rally, offering fresh signs to investors that the economy is stabilizing.

On Monday, the 30-stock Dow Jones industrial average finished higher by 214.33 points, or 2.61%, at 8,426.74. The broader S&P 500 index gained 29.72 points, or 3.39%, to 907.24. The tech-heavy Nasdaq composite index added 44.36 points, or 2.58%, to 1,763.56. Leading the market higher were financial, basic material, energy, and consumer issues.

Bonds eased. The dollar was mixed. Gold and energy futures climbed.

Market observers said a number of investors who had not taken part in recent rallies were inspired to do so Monday, notes S&P MarketScope.

Traders were awaiting the Fed's bank stress test results on Thursday and the nonfarm payroll report on Friday, which was expected to show the U.S. economy lost 560,000 jobs in April after a drop of 663,000 the month before.

Indexes had briefly pared gains after Obama loosely outlined proposed tax code changes in his budget that would close tax loopholes for corporations and individuals, mainly on overseas expense deductions, in addition to moves to shine some light and transparency on tax havens overseas with the cooperation of authorities there. He was joined in the planned press conference by Treasury Secretary Timothy Geithner.

"The issue is being pitched as one of 'fairness,' but any changes may be phased in two years hence given the stress on corporate balance sheets in the current recession, notes Action Economics. Some $210 billion in loopholes may be closed with increased IRS enforcement, while $75 billion in tax credits for domestic R&D will be given permanent status under the plan for a net $135 billion to the Federal bottom line.

In economic news Monday, U.S. construction spending rose 0.3% in March. It was much stronger than the 1.7% drop that markets had expected, after a downwardly revised 1.0% drop in February (-0.9% before). The increase in March breaks a string of five consecutive monthly declines. Residential spending fell another 4.1% after dropping 5.9% in February and down for the seventh consecutive month. Residential spending is down 33% from a year ago. Nonresidential spending rose 2.0%, after a 0.9% increase in February (previously 0.5%). Nonresidential construction is up 1.7% over last year. Public construction spending was up 1.1% in March, and is up 7% over last year.

"The report was better than expected, and together with the news that pending home sales improved in March, will add to beliefs the housing sector might be bottoming," says S&P senior economist Beth Ann Bovino.

The U.S. pending home sales index rose 3.2% to 84.6 in March, from a revised 82.0 in February (from 82.1). This is a second straight monthly gain and the index is up 3.2% year-over-year from 83.0 a year ago, and compares to a -6.3% pace reported for February. Data were mixed regionally, with the South and West up 8.5% and 3.9%, respectively, with declines in the Northeast and Midwest of 5.7% and 1.0%, respectively.

The data are much better than expected, notes Action Economics, perhaps with first time home buyers taking advantage of lower prices and the $8,000 tax credit, and add to equity market hopes that a bottom in housing and the economy might be forming.

The Fed's Senior Loan Officers' Survey showed that lending policies remained very elevated, but for the second straight month, the net percentages of respondents that reported having tightened their business lending policies edged down slightly. However, there was a somewhat larger net percentage of banks reporting tighter standards on residential mortgages. Meanwhile, the net percentage of domestic respondents that tightened their lending policies on credit card loans remained about unchanged from the January survey, whereas the net percentage that reported having tightened their policies on other consumer loans fell.

Meanwhile, banks indicated that demand for loans from both businesses and households continued to weaken for nearly all types of loans over the survey period, an exception being demand for prime mortgages, a category of loans that registered an increase in demand for the first time since the survey began to track prime mortgages separately in April 2007.

A new survey of Chinese manufacturing provided fresh evidence that massive fiscal and monetary stimulus is reviving the world's third-largest economy. An index based on a survey of industry executives conducted for Hong Kong-based brokerage CLSA rose to a nine-month high of 50.1 in April from 44.8 in March. It was the first time since July 2008 that the Purchasing Managers' Index (PMI), designed to provide a timely snapshot of manufacturing conditions, has been above the watershed of 50.

In company news Monday, the Financial Times reported that Bank of America (BAC) is working on plans to raise more than $10 billion in fresh capital, even as it and Citigroup (C) launch last-ditch attempts to convince the U.S. government they do not need to bolster their balance sheets. Citing people close to the situation, the paper said that Citi, Bank of America and at least two other lenders will on Monday attempt to convince the U.S. Treasury and Federal Reserve that the findings of "stress tests" into their financial health were too pessimistic. Bank of America, which has had $45 billion in government aid, was found to need well in excess of $10 billion, the Financial Times reported on its website on Sunday, citing sources.

Bloomberg News said Citi will seek to raise $10 billion from private sources. Other reports said Bank of America would do the same. Regional lenders Wells Fargo (WFC) and PNC Financial (PNC) were also among the banks that would need to raise more capital unless they could persuade the authorities their findings were wrong, the paper reported, citing people close to the situation.

According to a Wall Street Journal report, Fiat SpA chief executive Marchionne is stepping up his plan to acquire majority stake in General Motors Corp.'s (GM) German unit Opel, the next phase of his ambitious campaign to forge one of world's biggest auto makers by crafting a three-way alliance among Fiat, Chrysler, and Opel. The article also said that if a deal is reached, Fiat will consider creating a new publicly traded company that combines the auto maker's car unit, Fiat Group Automobiles, with GM's European operations.

Liberty Media Corp.- Interactive (LINTA) entered into a definitive agreement with DirecTV (DTV) for the combination of DirecTV with Liberty Entertainment Inc. (LEI), a company to be split-off from LINTA. Liberty Entertainment and DirecTV will merge with subsidiaries of a newly formed subsidiary of DirecTV that will be called DirecTV. Holders of DirecTV common stock will receive one share of new DirecTV Class A common stock per share. Holders of Liberty Entertainment Series A and Series B common will receive 1.1111 shares of new DirecTV Class A common per LEI Series A or Series B share held.

In earnings news Monday, Sprint Nextel (S) posted $0.03 vs. $0.04 first quarter adjusted EPS before amortization as sharply lower capital spending offset a 12% revenue drop. Wall Street was looking for a loss per share of $0.04-$0.05. Sprint expects that not only prepaid, but also post-paid and total subscriber full-year losses should improve in 2009 vs. 2008; it also expects to continue to generate positive free cash flow during the remainder of 2009.

Tyson Foods (TSN) posted a $0.24 second-quarter loss from continuing operations vs. $0.01 EPS on flat sales. The company said the second-quarter fiscal 2008 loss from continuing operations includes $0.17 from a change in the method the company used to recognize interim income taxes and $0.02 from a one-time charge for a prepared foods plant closure.

Before it's here, it's on the Bloomberg Terminal.