U.S. Stocks Gain as U.A.E. Backs Banks, Business Activity Rises

By Mary Childs

Nov. 30 (Bloomberg) -- U.S. stocks advanced after the United Arab Emirates pledged to back Dubai’s banks to ease the region’s debt crisis and American business activity unexpectedly accelerated this month.

Bank of America Corp. and JPMorgan Chase & Co. rose more than 1.9 percent, leading gains in the Dow Jones Industrial Average, as the cost to protect against Dubai defaulting on its debt declined. Caterpillar Inc. added 1.7 percent after the Institute for Supply Management-Chicago Inc. said its business barometer increased to the highest level since August 2008.

The Standard & Poor’s 500 Index climbed 0.4 percent to 1,096.05 at 10:40 a.m. in New York. The Dow increased 49.50 points, or 0.5 percent, to 10,359.42. Equities in developing nations surged, sending the MSCI Emerging Markets Index up 1.5 percent.

“The financials are going to be outperforming as people are relived that the Dubai situation seems to be getting better,” said Charles Bobrinskoy, vice chairman of Ariel Investments, which manages $5 billion.

Banks and brokerages rose the most among the S&P 500’s 10 broadest industries. U.S. bank exposure to the U.A.E. is “a very manageable” $9.9 billion compared with European banks that have lent almost nine times as much, according to CreditSights Inc. Citigroup Inc. was owed about $5.9 billion and JPMorgan about $2.5 billion as of the fourth quarter of 2008, CreditSights analysts led by David Hendler in New York wrote in a report yesterday.

Central Bank Backing

Bank of America added 2 percent to $15.78, JPMorgan rallied 1.9 percent to $42.13 and Citigroup climbed 1.9 percent to $4.14. The U.A.E.’s central bank said it “stands behind” the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility.

Caterpillar, the world’s biggest maker of earthmoving equipment, advanced 1.7 percent to $58.40. The ISM-Chicago gauge of business activity rose to 56.1 from 54.2 in October. Economists projected 53, the median estimate in a Bloomberg survey. Readings above 50 signal expansion.

Hedge funds are shoveling money into stocks as individuals exit at the fastest rate in a year, a sign to professional investors that the Standard & Poor’s 500 Index is poised to extend its gains.

About $37.3 billion has been pulled from U.S. mutual funds since August, according to the Investment Company Institute. Hedge funds -- which lost half as much on average as the S&P 500 since stocks peaked in October 2007 -- boosted bets to the highest level since the end of that year in the third quarter and have kept buying, according to data compiled by Goldman Sachs Group Inc., industry consultants and Bloomberg.
PRAVESH YADAV
PGDM 1st sem
(2009-11)