U.S. Stocks Advance as Geithner Says Banks Have Enough Cash

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April 21 (Bloomberg) -- U.S. stocks advanced the most in almost two weeks, led by financial shares, after Treasury Secretary Timothy Geithner said the “vast majority” of the nation’s banks have enough capital.

Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. rallied at least 9.2 percent, helping financial shares in the Standard & Poor’s 500 Index reverse a 4.1 percent drop and lead the market’s gain. Yahoo! Inc. added 5.3 percent on reports it’s in talks to form an advertising partnership with Microsoft Corp. DuPont Co., the third-largest U.S. chemical maker, added 4.9 percent after predicting a rebound in demand.

“Geithner’s comments that most banks are OK got money coming back into stocks,” said Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. “That pretty much allays yesterday’s fears about stress tests and banks having to raise more capital.”

The S&P 500 rose 2.1 percent to 850.08, its steepest gain since April 9, after dropping as much as 0.7 percent earlier. The Dow Jones Industrial Average increased 127.83 points, or 1.6 percent, to 7,969.56. The Russell 2000 Index of small companies jumped 3.9 percent. Six stocks climbed for each that fell on the New York Stock Exchange.

Benchmark indexes erased losses by about 11 a.m. as Geithner told Congress there are signs of thawing in credit markets and indications that confidence is returning. The earlier retreat came as companies from Bank of New York Mellon Corp. to Merck & Co. posted earnings or forecasts that trailed analyst estimates.

Banks Gain

Citigroup climbed 30 cents, or 10 percent, to $3.24 for the biggest advance in the Dow average. Bank of America jumped 74 cents, or 9.2 percent, to $8.76. JPMorgan Chase & Co. rose $2.84, or 9.6 percent, to $32.53. Wells Fargo & Co. added $1.81, or 11 percent, to $18.81.

The S&P 500 Financials Index of 80 banks, insurers and investment firms rose 8.2 percent after slumping 11 percent yesterday, its biggest slide since Jan. 20. The gauge is up almost 75 percent from a 17-year low reached March 6.

“Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators,” Geithner said in testimony to a congressional oversight panel on the government’s financial-rescue program. He added that there will be a “series of options” for lenders that need additional money following government stress tests.

The Federal Reserve is overseeing assessments of the health of the 19 biggest U.S. banks, with results to be released on May 4. The tests are designed to ensure the companies have enough capital to weather a deeper recession over the coming two years.

Remaining Funds

The Treasury chief said in a letter to the congressional oversight panel that the Troubled Asset Relief Program has enough money to aid banks even under “conservative” estimates. He reiterated the Treasury’s view that about $135 billion is still available in the fund approved by Congress in October. The letter said it’s possible the Treasury may have even more money remaining, depending on how many banks repay TARP funds and whether a housing-aid program uses its full allocation.

Lincoln National Corp. surged 20 percent to $10.56 after Bank of America analysts recommended buying shares of the insurer on the prospects of a government bailout. The firm applied for $3 billion in TARP funds last year.

Aflac Inc. jumped 17 percent to $29.23. Standard & Poor’s said a review of the biggest seller of supplemental insurance’s hybrid investments showed a downgrade is less likely.

Treasury bonds declined, sending 10-year yields up seven basis points to 2.91 percent, as concern eased over the extent of bank credit losses and after the Federal Reserve’s purchase of U.S. debt fell short of expectations.

Yahoo Rallies

Yahoo jumped 72 cents to $14.38. Microsoft has stepped up discussions with the owner of the second-ranked U.S. search engine about a partnership to challenge Google Inc. in the Internet-search market, people familiar with the matter said. Microsoft added 1.9 percent to $18.97.

DuPont Co. rose $1.32 to $28.06 after the third-biggest U.S. chemical maker said demand will improve from first-quarter lows because most customers have used up inventories and are increasing purchases.

General Motors Corp. rose 2.4 percent to $1.70 after a government auditor said the Treasury will supply the automaker with $5 billion in additional aid.

Tenet Rallies

Tenet Healthcare Corp. rallied 44 percent to $2.05 for the biggest advance in the S&P 500. The owner of hospitals reported first-quarter profit excluding some items of 8 cents a share. Analysts polled by Bloomberg estimated, on average, that the company would break even.

Emulex Corp. surged 47 percent to $9.70. Broadcom Corp. offered to purchase the maker of components for data storage devices for $9.25 a share, or about $764 million, to add components that help computers store data.

Merck & Co. fell 6.7 percent to $23.54, leading a gauge of 54 health-care companies to the only decline in the S&P 500 among 10 industries. The drugmaker buying rival Schering-Plough Corp. said profit fell 57 percent on declining sales for its cervical cancer vaccine and drugs for cholesterol and bone loss.

New York Times Co. lost 16 percent to $4.94 for the biggest decline in the S&P 500. The newspaper publisher posted a wider first-quarter loss after advertising revenue dropped 27 percent and said the rate of decline in ad sales will be similar in the second quarter.

‘Mixed Bag’

“Mixed bag of earnings,” said David Heupel, who helps manage $60 billion at Thrivent Financial for Lutherans in Minneapolis. “There are still signs of a tough economic environment, but companies that have really cut down their expenses are starting to see a little glimmer of life.”

Analysts estimate that profits at S&P 500 companies decreased for the seventh straight quarter in the January to March period, the longest stretch of declines since at least the Great Depression. Earnings have tumbled 22 percent on average for the 80 companies in the index that have released results since April 7.

Renewed concern that credit losses may worsen sent the S&P 500 down the most in seven weeks yesterday. The index has added 24 percent from a 12-year low March 9 as government efforts to fix the banking system and revive the economy fueled speculation the first global recession since World War II will end.

Zions Bancorporation plunged 15 percent to $10.94 for the second-biggest slide in the S&P 500 today. The Salt Lake City- based lender operating in 10 Western states posted an $832.2 million loss tied to defaults and declining real estate values in Texas.

Disappearing Dividends

KeyCorp dropped 4.7 percent to $7.05. The bank reported its fourth straight quarterly loss as it wrote down assets and set aside more money to cover bad loans. The bank plans to cut its dividend to 1 cent a share from 6.25 cents.

Dividends for S&P 500 companies will probably plunge 22.6 percent this year, the steepest annual decline since 1938, S&P forecast. Companies in the 500-stock index are on pace to make $189 billion in payouts in 2009, compared with $248 billion last year, according to data compiled by Howard Silverblatt, an analyst at S&P in New York.

The firm said 61 companies cut payouts in 2008, five times the total in 2003 through 2007. Bank of New York Mellon and KeyCorp bring the tally so far this year to 50, Silverblatt said.

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