U.S. Stocks Advance as Tech Rally Offsets Economic Concerns

A pedestrian walks outside EBay Inc. headquarters. Photographer: Tony Avelar/Bloomberg

Aug. 16 (Bloomberg) -- John Michaelson, co-founder of Imperium Partners Group LLC, talks about the impact of low interest rates on investments, bank lending and consumer confidence. Michaelson speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

U.S. stocks rose as gains in technology companies helped the market overcome an early slide triggered by weaker-than-expected reports on New York manufacturing, homebuilder confidence and Japan’s economy.

EBay Inc. gained 3.5 percent on speculation its PayPal service will be used by Google Inc.’s smartphone. Freeport- McMoRan Copper & Gold Inc. climbed 1.4 percent as a slumping dollar boosted copper and gold and Goldman Sachs Group Inc. reiterated its “overweight” rating on commodities. Corinthian Colleges Inc. and Washington Post Co. sank at least 9.8 percent on concern they will lose access to government student loans.

The S&P 500 climbed 0.3 percent to 1,082.55 at 12:39 p.m. in New York, recovering from an early 0.9 percent slump. The Dow Jones Industrial Average increased 29.90 points, or 0.3 percent, to 10,333.05, reversing a 94-point tumble.

“The stock market is attractive on valuation basis,” said Mark Bronzo, an Irvington, New York-based fund manager at Security Global Investors, which oversees $21 billion. “A lot of money has flown out of equities. Earnings have been good, with respectable top-line growth. It’s a good indication that the rally is being triggered by groups most-tied to economic growth.”

Economic Reports

Stocks tumbled in early trading after weaker-than-forecast reports on New York manufacturing and Japan’s economy added to concern the global recovery is slowing. About $1.9 trillion has been wiped from the value of global equities since the Federal Reserve said Aug. 10 that the pace of economic recovery will probably be “more modest” than forecast. The 4.3 percent retreat in the S&P 500 from Aug. 9 through Aug. 13 threatened the index’s rebound from a 10-month low on July 2.

Technology shares had the biggest gain in the S&P 500 among 10 industries. Cisco Systems Inc., the world’s largest maker of networking equipment, led the gains in the Dow, rising 2.9 percent to $21.97.

EBay rose 3.5 percent to $22.25. Its PayPal business is in talks to add its payment service to Google Inc.’s Android smartphone software, making it easier for users to pay for applications, three people familiar with the matter said. Users of Android phones, such as Motorola Inc.’s Droid X and HTC Corp.’s Droid Incredible, may be able to pay for apps with PayPal as soon as this year, said the people.

A gauge of raw-materials producers had the second-biggest gain in the S&P 500 among 10 industry groups.

Gold, Copper

Gold prices rose to a six-week high on signs the global economy is faltering, boosting demand for the metal as a protector of wealth. Copper rose in New York and London as the dollar weakened and orders to draw metal from stockpiles jumped the most in more than two months, signaling steady demand.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.9 percent today after five gains in a row. A weaker dollar makes metals priced in the currency cheaper in terms of other monies.

Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, rose 1.4 percent to $71.02. Newmont Mining Corp., the largest U.S. gold producer, gained 1.4 percent to $57.50.

Commodities demand from emerging markets and limited growth in supplies will help to support prices toward the end of the year, according to Goldman Sachs Group Inc., which backed oil, gold, copper, zinc and platinum. The firm reiterated an “overweight” recommendation on commodities, analysts led by Allison Nathan and Jeffrey Currie wrote in a report.

‘Good Indication’

“Corporate earnings have been strong,” said Peter Jankovskis, who helps manage about $2.2 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “However, people are wary because of weak global economic numbers. We’ll have a fair amount of economic data this week and investors will be waiting to see what those numbers will show.”

Investors are moving more money than ever before out of stocks and into bonds, widening a valuation gap and convincing the biggest money managers that now is the time to buy equities.

About $33 billion flowed out of funds owning U.S. shares this year even as the economic recovery sent free cash flow for American companies excluding banks to 6.8 percent of their market value. That’s the highest level compared with corporate debt yields since 1960, Credit Suisse Group AG data show. About $185 billion was sent to bond funds through July 31, the most on record, according to the Investment Company Institute.

“People would rather overpay for bonds than underpay for stocks,” said David Kelly, who helps oversee $445 billion as chief market strategist for JPMorgan Funds in New York. “It’s a reflection of an extraordinary prejudice. If people are at an emotional extreme, it means that at some point there’s got to be reallocation of cash away from the bond market toward the stock market. Ultimately, it’s bullish.”

Home Improvement

Lowe’s Cos. gained 2 percent to $19.99. The second-largest U.S. home-improvement retailer forecast earnings excluding some items between $1.38 and $1.45 a share for the fiscal year ending January 2011, beating some analyst estimates. Home Depot Inc., the largest U.S. home-improvement retailer, climbed 1.2 percent to $27.65.

3Par Inc. surged 87 percent to $18.02. Dell Inc. agreed to buy the maker of hardware and software for reducing information- storage requirements for about $1.15 billion. 3Par investors will get $18 a share in cash. That’s almost double the stock’s closing price of $9.65 on Aug. 13.

Manufacturing

The S&P 500 fell as much as 0.9 percent after a report showed that the Fed Reserve Bank of New York’s general economic index rose to 7.1 this month from 5.1 in July. Economists forecast the measure would rise to 8, according to the median estimate in a Bloomberg News survey. Readings greater than zero signal expansion in the so-called Empire State Index that covers New York, northern New Jersey and southern Connecticut.

The National Association of Home Builders/Wells Fargo confidence index fell to 13 this month, the lowest level since March 2009, from 14 in July, data from the Washington-based group showed. Economists forecast a reading of 15, according to the median estimate in a Bloomberg News survey. Readings lower than 50 mean more respondents said conditions were poor.

Gross domestic product in Japan rose an annualized 0.4 percent in the second quarter, the country’s Cabinet Office said today, pushing the economy into third place behind the U.S. and China. The median estimate of 19 economists surveyed by Bloomberg News was for growth of 2.3 percent.

‘Worrisome’

“Economic momentum has slowed and that’s worrisome,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $63 billion. “The numbers show a very tepid recovery in developed economies. Corporate earnings have been good, but the overall economic momentum has been disappointing. That plays into expectations for sales growth and the stock market.”

Colleges owned by Corinthian Colleges, Career Education Corp. and Washington Post have campuses where fewer than 20 percent of federal student loans are being repaid, according to the U.S. Department of Education, which wants to use the data to determine whether programs can remain eligible for aid.

Nationally, for-profit colleges have a 36 percent student- loan repayment rate, compared with 54 percent at public universities and 56 percent at private nonprofits, according to an analysis of the Education Department data by the Institute for College Access & Success, an Oakland, California nonprofit research and advocacy group.

Corinthian Colleges sank 23 percent, the most intraday in almost two years, to $5.16. The Santa Ana, California-based company was downgraded to “equal weight” from “overweight” at Barclays Plc. and cut to “market perform” from “outperform” at BMO Capital Markets.

Washington Post slumped 9.8 percent to $310.