U.S. Stocks Rally on Growing Prospects for Bailout of Greece

U.S. stocks rallied, sending the Dow Jones Industrial Average up the most since July, as growing prospects for a bailout of Greece eased concern deteriorating government finances will derail the global economic recovery.

Financial shares in the Standard & Poor’s 500 Index reversed an earlier drop and climbed 1.8 percent as a group, led by JPMorgan Chase & Co. and Wells Fargo & Co. Freeport-McMoRan Copper & Gold Inc. and ConocoPhillips rose at least 2.9 percent as metals gained and oil rebounded to near $74 a barrel. Coca- Cola Co. jumped 4 percent after sales grew in China and India.

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“Stocks will continue grinding higher,” said John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees more than $200 billion. “The business environment is very encouraging. Earnings are decent and demand is coming back. We do seem to be experiencing economic recovery. There’s some speculation Greece is going to be helped out in some way. That also helps.”

The S&P 500 climbed 1.4 percent to 1,071.03 at 12:44 p.m. in New York. The Dow increased 165.29 points, or 1.7 percent, to 10,073.68 after earlier rallying as much as 2.3 percent for its biggest intraday gain since July 23. Five stocks rose for each that fell on the New York Stock Exchange.

Benchmark indexes surged to their highs of the session as European officials held out the prospect of aiding Greece. Olli Rehn, who takes over as European Union economic affairs commissioner tomorrow, said support for Greece will be discussed in coming days. Michael Meister, a German legislator from Chancellor Angela Merkel’s Christian Democrats, said lawmakers in that country are considering financial assistance.

Sovereign Debt

U.S. stocks retreated yesterday amid concern that growing deficits and sovereign debt at some European governments will slow the recovery from the first global recession since World War II. The S&P 500 has fallen for four straight weeks, the longest losing streak since July, and is down about 7 percent from a 15-month high on Jan. 19.

EU leaders will discuss Greece’s plans to reduce the region’s biggest deficit when they meet Feb. 11, and European Central Bank President Jean-Claude Trichet’s decision to leave a meeting of policy makers in Sydney one day early fanned speculation that officials will agree on aid.

Fitch Ratings analyst Brian Coulton said an EU bailout for Greece is a “possibility” and not “assured.” He spoke on a conference call today. Equities trimmed gains earlier, and European shares erased a rally, after Fitch Ratings analysts also said the U.K. needs to pledge further measures to rein in its budget deficit, and the medium-term outlook for Greece is “cloudy.”

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Wholesale Inventories

Benchmark indexes remained higher after the Commerce Department reported that inventories at U.S. wholesalers unexpectedly fell in December after the biggest increase in more than five years, indicating distributors had trouble keeping up with demand. The 0.8 percent decrease in stockpiles followed a revised 1.6 percent gain in November that was the largest since July 2004. Sales climbed 0.8 percent.

More than 300 companies in the S&P 500 have reported fourth-quarter earnings since Jan. 11, and about 77 percent have beaten analysts’ estimates, according to data compiled by Bloomberg. The economy in the U.S. expanded 5.7 percent in the fourth quarter, the fastest pace in six years, the Commerce Department said Jan. 29.

‘Flows Will Come’

“Flows will come to equities,” Binky Chadha, chief U.S. equity strategist at Deutsche Bank AG, told Bloomberg Radio. “We think that stage of the easy money is over. There’s still plenty of upside, but it’s going to be more about picking sectors and stocks. The key is not to buy just quality, but quality stocks that are cheap looking at the earnings power of these companies. For the year as a whole we’re optimistic.” He forecasts the S&P 500 at 1,325 by year-end.

Freeport-McMoRan, the world’s largest publicly traded copper producer, advanced 5 percent to $72.64. Copper rose for a second day in London, gaining 2.7 percent, on speculation that demand may swell on increased imports of metal into China, the world’s largest user.

Exxon Mobil Corp., the largest U.S. energy company, gained 1.8 percent to $65.50 as crude oil rallied 2.6 percent in New York before a report due tomorrow that may show U.S. inventories of diesel and heating oil contracted last week. ConocoPhillips shares added 2.9 percent to $48.74.

Coca-Cola

Coca-Cola rallied 4 percent to $54.75. The world’s largest soft-drink maker reported fourth-quarter profit that met analysts’ estimates as sales by case volume grew 29 percent in China and 20 percent in India, helping boost global volume 5 percent and offsetting declining volume sales in North America.

Caterpillar Inc. rose 6.3 percent to $53.97. The world’s largest maker of bulldozers was raised to “overweight” from “underweight” at Morgan Stanley.

Monsanto Co., the world’s largest seed producer, gained 3.9 percent to $77.10. The shares were raised to “buy” from “neutral” at Bank of America Corp.’s Merrill Lynch Global Research, which cited “attractive” prospects in the corn-seed business and an improved outlook for the Roundup weed-killer.

NYSE Euronext rose 5.9 percent to $23.83. The largest owner of stock exchanges posted profit of $172 million for the fourth quarter as derivatives trading buoyed revenue and the company cut expenses after a $1.59 billion writedown last year.

Harman International Industries Inc. had the biggest gain in the S&P 500, surging 16 percent to $41.27. The maker of audio systems for homes and vehicles posted adjusted profit of 40 cents a share in the fiscal second quarter, five times higher than the average analyst estimate in a Bloomberg survey.

Electronic Arts Inc. plunged 9.4 percent to $15.84. Fiscal 2011 profit, excluding some items, will be 50 cents a share to 70 cents a share, the Redwood City, California-based video-game maker said in a statement after the close of trading yesterday. That’s less than the $1 a share projection of Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles.

GameStop Corp. lost 4 percent to $18.91. The video-game retailer was downgraded to “Neutral” from “Outperform” at Credit Suisse.

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