March 21 (Bloomberg) -- U.S. stocks posted their biggest gain in seven weeks after the Federal Reserve injected more cash into the banking system and Wall Street's largest securities firms posted earnings that topped estimates.
Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. led the largest rally in financial shares since September 2001 after their first-quarter results eased concern a cash shortage at banks will deepen. Fannie Mae and Freddie Mac jumped more than 50 percent after the biggest sources of mortgage financing agreed to expand loan purchases. Homebuilders surged.
``It could be a turning point,'' said Jeffrey Kleintop, who helps oversee about $273 billion as chief market strategist at LPL Financial in Boston. ``What we have to get confidence around is that there aren't going to be dominos, there aren't going to be a number of other firms failing.''
The Standard & Poor's 500 Index advanced 3.2 percent to 1,329.51 this week, trimming its 2008 loss to 9.5 percent. The Dow Jones Industrial Average rose 3.4 percent to 12,361.32. The Russell 2000 Index, whose members have a median market value 95 percent less than the S&P 500's, climbed 2.8 percent to 681.42.
Stocks fell to begin the week as client withdrawals at Bear Stearns Cos. forced the fifth-largest securities firm to sell itself to JPMorgan Chase & Co. at a 93 percent discount. The Fed fueled the rebound with a 0.75 percentage point cut in its interest-rate benchmark and a new lending program for brokers.
The S&P 500 Financials Index surged 12 percent, the most in 6 1/2 years.
Asset Writedowns
Goldman climbed 15 percent to $179.63. The world's biggest securities firm by market value reported first-quarter profit that beat analysts' estimates as asset writedowns and a drop in fixed-income revenue weren't as bad as expected.
Lehman added 24 percent to $48.65. The fourth-biggest U.S. securities firm topped estimates and reassured shareholders that it has more than enough capital to survive. Lehman said it had $30 billion of cash and $64 billion in assets that could easily be turned into cash as of March 17.
Morgan Stanley rose 26 percent to $49.67. The second-biggest U.S. securities firm reported earnings that fell less than analysts estimated as record equity sales and trading offset writedowns from the collapse of the subprime mortgage market.
JPMorgan, the third-largest U.S. bank by assets, agreed to buy Bear Stearns for $240 million, or about $2 a share, after clients alarmed by speculation about a cash shortage withdrew $17 billion from Wall Street's fifth-largest securities firm in two days. The Fed provided financial backing to JPMorgan to complete the deal.
Investor Resistance?
JPMorgan jumped 26 percent to $45.97. Bear Stearns dropped 80 percent to $5.96. Bear Stearns shares traded above the deal price as investors speculated resistance from current shareholders would force a higher offer.
Fannie Mae jumped 53 percent to $34.30. Freddie Mac added 54 percent to $32.58. They agreed to expand their purchases of U.S. mortgages and related securities after the Bush administration reduced the amount of capital the companies are required to hold as a cushion against losses.
D.R. Horton Inc., the biggest U.S. homebuilder by market value, climbed 13 percent to $15.68. Pulte Homes Inc., the second largest, added 20 percent to $14.67.
Lower commodity prices dragged down energy and raw-materials producers and kept the market from rallying more. The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, marking the steepest drop since at least 1956. After reaching records this week, gold plummeted as much as $129 an ounce and crude oil tumbled more than $13 a barrel.
Exxon, Freeport-McMoRan
Exxon Mobil Corp., the biggest U.S. oil company, lost 1.1 percent to $85. Freeport-McMoRan Copper & Gold Inc. declined 14 percent to $87.08.
Treasury bills maturing within six months climbed, sending yields to the lowest level since the 1950s, as the loss of investor confidence in short-term credit markets deepened. Three- month bill rates touched 0.39 percent.
Two-year note yields sank to 1.24 percent on March 17, the lowest since 2003, before climbing to 1.6 percent as traders pared bets on additional Fed rate cuts. Ten-year note yields declined to 3.33 percent as the dollar's gain eased concern inflation will accelerate.
The central bank reduced its main lending rate to 2.25 percent. The reduction was 0.25 percentage point smaller than futures traders anticipated, spurring a rally in the dollar and the biggest weekly drop in commodities in five decades.
``People who thought they had to hide from the U.S. dollar went into gold and commodities to protect themselves,'' said Komal Sri-Kumar, who helps oversee about $147 billion as chief global strategist at TCW Group. ``There was a lot of speculation.''
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