-- U.S. stocks rallied, capping the first monthly gain since May, after President George W. Bush and Federal Reserve Chairman Ben S. Bernanke pledged to prevent credit losses from snuffing out the nation's economic expansion.
Fannie Mae, the largest source of money for U.S. home loans, and Goldman Sachs Group Inc., the biggest securities firm, climbed after Bush said the government will help people with delinquent mortgages keep their homes. Bernanke's promise to ``act as needed'' to limit the impact of loan defaults helped send consumer-related shares to the highest level in three weeks.
The Standard & Poor's 500 Index increased 16.35, or 1.1 percent, to 1,473.99. The Dow Jones Industrial Average added 119.01, or 0.9 percent, to 13,357.74. The Nasdaq Composite Index jumped 31.06, or 1.2 percent, to 2,596.36.
``Lightning struck twice in the same place, with Bush supporting housing and Bernanke suggesting the Fed is ready to accommodate if it's required,'' said Hank Herrmann, who oversees $55 billion as chief investment officer at Waddell & Reed Asset Management Co. in Overland Park, Kansas. ``Those were both soothing to a market that's really been on edge.''
The S&P 500 closed the week with a 0.4 percent decline while the Dow average slipped 0.2 percent. The Nasdaq climbed 0.8 percent. All three indexes gained more than 1 percent this month following the biggest tumble in four years.
Bush today announced plans to let the Federal Housing Administration, which insures mortgages for low- and middle- income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favorable rates.
Bernanke's Remarks
Bernanke, in his first public remarks in six weeks, said the central bank will do what's needed to prevent this month's credit market rout from undoing the six-year expansion. He also said it is ``not the responsibility'' of policy makers to protect lenders and investors from the consequences of their financial decisions.
The S&P 500 has dropped 5.1 percent from a record high reached July 19 on concern mortgage defaults spurred by the worst U.S. housing slump in 16 years will increase borrowing costs and slow economic growth. U.S. stocks fell yesterday after Lehman Brothers Holdings Inc. said tighter credit may reduce bank profits and Freddie Mac predicted the housing market will keep languishing.
Fannie Mae climbed $2.21 to $65.61. Goldman rose $4.63 to $176.01. Financial shares in the S&P 500 increased 1.5 percent as a group.
Homebuilders Rally
Homebuilders also rallied on Bush's plan. Lennar Corp., the biggest U.S. builder, increased 75 cents to $28.27. D.R. Horton Inc., the No. 2 homebuilder, gained 55 cents to $15.11.
More than seven stocks gained for every one that fell on the New York Stock Exchange. Some 1.4 billion shares changed hands on the Big Board, 20 percent less than the three-month daily average. U.S. exchanges will be closed Sept. 3 for the Labor Day holiday.
A Commerce Department report today showed consumer spending expanded in July and inflation cooled. The 0.4 percent rise in spending followed a 0.2 percent increase in June that was bigger than initially estimated. Incomes grew 0.5 percent in July, the most in four months.
Consumer-related shares in the S&P 500 climbed 1.7 percent as a group for the top advance among 10 industries.
Home Depot Inc. gained $1.27, or 3.4 percent, to $38.31 for the biggest rise in the Dow average. The world's largest home- improvement chain said it completed the $8.5 billion sale of its construction-supply unit to a group of buyout firms.
Target, J.C. Penney
Target Corp., the second-largest U.S. discount retailer, added $2.12 to $65.93. J.C. Penney Co., the third-largest U.S. department-store company, increased $2.77 to $68.76.
The spending report's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, increased 0.1 percent in July, less than the 0.2 percent gain projected by economists surveyed. It was up 1.9 percent from July 2006.
Exxon Mobil Corp., the world's largest fuel producer, led energy shares higher after the price of crude oil reached its highest close since Aug. 3 on concern a developing storm in the Atlantic Ocean may intensify and threaten rigs and pipelines in the Gulf of Mexico.
A weather system east of the Windward Islands may become a tropical depression later today, the Miami-based National Hurricane Center said on its Web site. Crude oil for October delivery climbed 0.9 percent to $74.04 a barrel.
Exxon, Chevron
Exxon added 33 cents to $85.73. Chevron Corp., the second- largest U.S. oil producer, increased 57 cents to $87.76.
All 10 industry groups in the S&P 500 advanced, with 450 of the index's members posting gains.
In his first remarks since a sell-off in credit markets forced the Fed to cut the interest rate on direct loans to banks, Bernanke said policy makers will ``act as needed'' to limit damage to consumer spending from the housing recession. Bernanke also made it clear the Fed won't save investors from bad choices.
``It is not the responsibility of the Federal Reserve -- nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions,'' Bernanke said at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming. ``But the developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.''
Fed Funds
Fed funds futures contracts showed traders see a 46 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, down from 64 percent odds yesterday. Futures trading suggests a 54 percent chance the Fed's benchmark rate will drop to 5 percent in September.
In other economic data today, the Reuters/University of Michigan final index of sentiment fell to 83.4 this month from 90.4 in July. The reading compares with a preliminary figure of 83.3 for August.
The National Association of Purchasing Management-Chicago said its business barometer rose to 53.8 in August from 53.4 the previous month. Readings greater than 50 signal growth.
ITT Corp. jumped $3.40 to $67.99. The company won a $1.8 billion contract to overhaul the U.S. air traffic-control system with satellite-based technology.
Accredited Home Lenders Holding Co. gained $2.74 to $9.05. Buyout firm Lone Star Funds made a new takeover bid for the subprime mortgage company. Lone Star offered $8.50 a share, 35 percent more than yesterday's closing price, to defuse a legal scuffle that followed its attempt to back out of an earlier acquisition agreement with Accredited.
The Chicago Board Options Exchange Volatility Index dropped 6.7 percent to 23.38. Lower readings on the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect smaller share-price swings in the next 30 days.
The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, gained 1.3 percent to 792.86. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, added 1.2 percent to 14,847.70. Based on its rise, the value of stocks increased by $213.1 billion.
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