U.S. Stocks Rise, S&P 500 Climbs Most in Six Weeks; Dell Gains

By Michael Patterson

June 2 (Bloomberg) -- U.S. stocks resumed their record- breaking rally and the Standard and Poor's 500 Index climbed the most in six weeks on takeovers, earnings that topped analysts' estimates and signs that economic growth is accelerating.

Real-estate shares led the S&P 500 to three straight records after Lehman Brothers Holdings Inc. and Tishman Speyer Properties LP agreed to buy U.S. apartment developer Archstone-Smith Trust for $13.5 billion. Dell Inc. and Ciena Corp. pushed a gauge of computer-related shares to the highest since August 2001 after the companies said profit gains were fueled by rising sales.

Better-than-expected first-quarter earnings and more than $1.1 trillion of announced mergers and acquisitions this year helped the S&P 500 eclipse its 2000 peak and lifted the Dow Jones Industrial Average to its 26th all-time high. Reports this week on employment, consumer spending and manufacturing signaled that the U.S. economy is rebounding from the weakest growth in more than four years without fueling inflation.

``What we're really doing is navigating this rather tight road of strong-enough economic growth to support continued earnings gains, but not so strong that inflation becomes a problem,'' said Mark Jordahl, who helps oversee about $73 billion as chief investment officer at First American Funds in Minneapolis.

Economy Watch

The S&P 500 climbed 1.4 percent to 1536.34, the best weekly gain since the period ended April 20. The index completed its best May since 2003 and surpassed its previous record of 1527.46 reached March 24, 2000.

The Dow average rose 1.2 percent to 13,668.11. The Nasdaq Composite Index, which gets more than two-fifths of its value from computer-related shares, jumped 2.2 percent to 2613.92 for its first weekly advance in a month. Exchanges were closed May 28 for the Memorial Day holiday.

The Commerce Department said gross domestic product, the value of all goods and services produced, grew at an annual rate of 0.6 percent in the first quarter, the weakest increase since the last three months of 2002.

Other reports this week suggested last quarter may have been the low point of the economy's expansion.

Employers added 157,000 jobs in May, the Labor Department said, nearly twice the previous month's rate. Economists surveyed by Bloomberg News had expected 132,000. The jobless rate stayed at 4.5 percent, close to a five-year low.

Manufacturing, Fed Minutes

Personal spending rose 0.5 percent in April and the gauge of inflation most closely watched by the Federal Reserve rose 0.1 percent, less than the 0.2 percent gain forecast in a Bloomberg survey.

That left the inflation measure with a gain of 2 percent from April 2006. Fed officials, including Chairman Ben S. Bernanke, have said they'd be comfortable with a 1 percent to 2 percent range.

The Institute for Supply Management's factory index rose to 55 in May, the highest in 13 months, from 54.7 in April.

Minutes released this week from the Fed's rate-setting Open Market Committee showed policy makers expect economic growth to pick up and approach its ``trend rate'' next year.

``The employment numbers looked pretty good -- consumers continue to spend,'' said Hans Olsen, who oversees $2.4 billion as chief investment officer at Bingham Legg Advisers LLC in Boston. ``All told, we're lining up for a very good second quarter earnings season.''

More Takeovers

About $63 billion in announced mergers and acquisitions this week added to this year's record pace of takeovers.

Archstone-Smith surged 11 percent to $61.57. Tishman Speyer, the New York-based real-estate investor, and Lehman agreed to buy Archstone for $60.75 a share, the companies said in a statement.

A gauge of real-estate companies in the S&P 500 rose 6.9 percent. Simon Property Group Inc. gained 6 percent to $108.02. Equity Residential jumped 7 percent to $50.89.

Dow Jones & Co., publisher of the Wall Street Journal, surged 18 percent to $61.20 for the top gain in the S&P 500. The Bancroft family said it will consider other bidders and options for the company while agreeing to meet with Rupert Murdoch's News Corp. to discuss his $60-a-share bid. The Bancrofts' Dow Jones shares give them 64 percent of the votes.

Avaya Inc. rose 18 percent to $16.08 for the second-best gain in the S&P 500. Silver Lake Partners is in talks about a buyout of the world's biggest maker of corporate telephone equipment, according to the Wall Street Journal. Avaya spokesman Jim Finn and Matt Benson, spokesman for Silver Lake, declined to comment.

``There's a liquidity boom out there globally that's putting a floor under markets,'' said Sean Clark, who helps manage $1.3 billion as chief investment officer at Clark Capital Management in Philadelphia. ``We think there's lots of room for stocks to move higher.''

Earnings Top Estimates

Dell jumped 5 percent to $27.30, its highest level since November 2006. First-quarter profit excluding some costs was 36 cents a share, topping the average 27-cent estimate in a Bloomberg survey of analysts. Sales totaled $14.6 billion, compared with the $14.1 billion anticipated by analysts.

The company said it raised average selling prices of its products by 14 percent and slashed procurement costs. Dell also will cut about 8,800 jobs.

Ciena Corp. jumped 16 percent to $34.92. The maker of computer-networking equipment had second-quarter profit and sales that topped analysts' estimates as phone companies including BT Group Plc boosted spending to make their systems faster.

Technology shares in the S&P 500 extended a five-day rally and climbed 2 percent for the second-best performance among 10 industry groups.

About 66 percent of the 483 S&P 500 companies that reported first-quarter results beat analysts' estimates, according to data compiled by Bloomberg. Earnings climbed 11.6 percent on average, more than three times analysts' estimates in March.

Wal-Mart Stores Inc., the world's biggest retailer, rose the most in 19 months after saying it will buy back as much as $15 billion in stock. The buyback equals as much as 7.4 percent of its stock outstanding.

At its annual meeting, the company also said it will build fewer stores than it previously predicted. The shares added 5.5 percent to $49.47 for the best advance in the Dow industrials.

To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .
Last Updated: June 2, 2007 11:46 EDT