U.S. Stocks Gain After Retail Sales Top Forecast; EMC Climbs

Date: Monday, August 13, 2007
Author: By Lynn Thomasson

Aug. 13 (Bloomberg) -- U.S. stocks rose after retail sales exceeded economists' estimates in July and optimism about the planned initial public offering of an EMC Corp. unit boosted technology shares.

EMC, the world's largest maker of data-storage computers, climbed the most since 2005. Sears Holdings Corp., the biggest U.S. department-store company, posted its best gain in a year on a $1.5 billion share buyback plan. Apple Inc. advanced after its iPhone drove electronics sales last month.

Europe's Dow Jones Stoxx 600 Index rallied the most in more than a year as the European Central Bank said credit markets are returning to normal from a crisis in confidence spurred by U.S. subprime mortgage defaults. Asian shares rebounded from the worst drop in five months.

The S&P 500 added 3.22, or 0.2 percent, to 1456.86 at 1:50 p.m. in New York. The Dow Jones Industrial Average gained 24.96, or 0.2 percent, to 13,264.5. The Nasdaq Composite Index increased 3.24, or 0.1 percent, to 2548.13.

``Retail sales is a building block number, it's a pretty good indication about where the consumer stands,'' said David Doll, who helps manage about $2 billion as chief executive officer of Kanaly Trust Co. in Houston.

Gains were limited as homebuilders fell after JPMorgan Securities Inc. downgraded shares of D.R. Horton Inc. and regulators denied requests by Fannie Mae and Freddie Mac to buy more mortgages.

Retail Sales

U.S. retail sales rose 0.3 percent in July after a 0.7 percent drop in June that was smaller than previously estimated, the Commerce Department said. Economists expected an increase of 0.2 percent, according to a Bloomberg survey.

Economists said the iPhone helped drive a 1 percent gain in electronics sales for retailers. Apple's shares climbed $3.45 to $128.45.

EMC rose $1.28, or 7.2 percent, to $19 for the biggest gain since April 2005.

S&P equity analyst Jawahar Hingorani said EMC's planned initial public offering of its VMware software business ``adds to our positive view of EMC fundamentals.'' Hingorani, who rates the shares a ``strong buy,'' said EMC's stake in VMware may be worth about $9 billion after the IPO.

VMware plans to raise as much as $1.1 billion today. Last week, the company boosted the high end of its price range by 16 percent. The maker of programs to manage server computers plans to sell shares for $27 to $29 each, up from the $23 to $25 planned last month.

Financials, Homebuilders

Financial shares were led lower by Fannie Mae, the largest source of U.S. home loans. After the close of trading on Aug. 10, regulators denied requests by Fannie Mae and Freddie Mac to purchase more loans and increase the supply of cash to the mortgage market. Fannie Mae fell $3.16 to $63.30. Freddie Mac lost $1.59 to $60.36.

Homebuilders dropped 5.4 percent, the steepest decline since November 2005. D.R. Horton Inc., the second-largest U.S. homebuilder, fell 79 cents to $16.65 after analysts at JPMorgan Securities Inc. cut the shares to ``neutral'' from ``overweight'' and said they expect negative order growth for homebuilders in the second half as ``elevated'' inventories hurt pricing.

Beazer Homes USA Inc. fell $1.32 to $13.86. The builder under investigation by the FBI and securities regulators said it will delay filing its quarterly report with securities regulators.

Blackstone Group LP, manager of the world's largest private- equity fund, added $1.12 to $26.40. In its first report as a public company, Blackstone's second-quarter earnings more than tripled as revenue at its four main units increased during a record year for leveraged buyouts. Morgan Stanley began coverage of the stock with an ``overweight'' recommendation.

Fannie, Freddie

Sears Holdings Corp. rose $6.15 to $139.25. The company said it would spend as much as $1.5 billion to buy back shares and reported second-quarter profit that was within the retailer's estimate.

In other economic reports, a government report said businesses had enough goods on hand to last 1.27 months at June's sales pace, near the lowest in a year. Leaner inventories put companies in a better position to deal with any slump in demand without slashing orders or production. Inventories increased 0.4 percent in June, matching economists' forecasts, the Commerce Department said, while sales fell 0.3 percent for the first decline since January.

In Europe, the Dow Jones Stoxx 600 Index climbed 2.2 percent, its biggest advance since July 2006. London's FTSE 100 Index climbed 3 percent, the most since April 2003. Japan's Nikkei 225 Stock Average rose 0.2 percent.

ECB Infusion

The European Central Bank added an extra 47.7 billion euros ($65 billion) in emergency money and the Bank of Japan injected 600 billion yen ($5.1 billion) into its system. Last week, central banks in the U.S., Europe, Japan, Australia and Canada added about $136 billion to the banking system.

Axa SA, Europe's second-biggest insurer, climbed 4.2 percent to 29.20 euros. Credit Suisse, the second-largest Swiss bank, advanced 2.2 percent to 82.65 Swiss francs.

European financial stocks were raised to ``overweight'' from ``underweight'' at Morgan Stanley.

``We think that the current financial trouble is properly reflected in valuations and sentiment alike,'' Teun Draaisma, a strategist at Morgan Stanley, wrote in a note today. ``Fundamentals are solid with no recession in sight, and we welcome the fact that central banks globally are clearly stepping up to the plate.''

Draaisma also increased European equities to ``overweight'' from ``neutral.''

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net .