U.S. Stocks Advance After ISM Report Tops Forecast; Ambac Gains

U.S. Stocks Advance After ISM Report Tops Forecast; Ambac Gains

By Elizabeth Stanton

March 5 (Bloomberg) -- U.S. stocks posted their biggest gain in a week on a better-than-forecast report about service industries and speculation banks will provide capital that bond insurers require to keep their AAA ratings.

Wells Fargo & Co., Citigroup Inc. and Lehman Brothers Holdings Inc. led banks to their first gain in five days after CNBC reported, without citing anyone, that a rescue of Ambac Financial Group Inc. may be completed today. Energy and metal producers rallied, led by Chevron Corp. and Freeport-McMoRan Copper & Gold Inc., as oil rose above $100 a barrel and copper advanced as the dollar declined against the euro.

The Standard & Poor's 500 Index added 10.1 points, or 0.8 percent, to 1,336.85 at 11 a.m. in New York. The Dow Jones Industrial Average advanced 76.61, or 0.6 percent, to 12,290.41. The Nasdaq Composite Index increased 20.06, or 0.9 percent, to 2,280.34. Five stocks advanced for every two that fell on the New York Stock Exchange. European stocks climbed for the first time in six days. Asian stocks declined.

``If we can get a deal done with Ambac Financial, that would be a first step to restoring confidence,'' Scott Richter, a portfolio manager at Fifth Third Asset Management in Cleveland, which oversees $21 billion, said in an interview on Bloomberg Television.

Nine of 10 industries in the S&P 500 advanced after the Institute for Supply Management's non-manufacturing gauge rose almost five points to 49.3, just shy of the 50 threshold between contraction and expansion. The services index, which accounts for 90 percent of the economy, overshadowed a private report showing an unexpected decline in jobs and government data that showed a drop in factory orders.

Banks Rally

Wells Fargo added $1.02 to $29.85. Citigroup climbed 41 cents to $22.51. Lehman rose $1.25 to $49.60. The S&P 500 Financials Index climbed 1.2 percent, its first advance since Feb. 27.

Ambac gained $1.02, or 9.5 percent, to $11.74 after climbing 7.9 percent yesterday. Citigroup Inc. and Barclays Plc are leading talks to boost the insurer's capital, CNBC said. Ambac shares have dropped 88 percent in the past year as it seeks to prevent a downgrade of its AAA rating following record losses on subprime guarantees. The loss of Ambac's top rating would cast doubt on $556 billion of municipal and asset-backed securities insured by the company, forcing some investors to sell the debt and others to reduce their holdings.

Chevron added 88 cents to $87.61. Crude oil for April delivery increased as much as 3.5 percent to $102.95 a barrel in New York. Freeport-McMoRan climbed $2.92 to $101.85.

Big Lots, Tyson

Big Lots Inc. led retailers in the S&P 500 to a 1.9 percent gain. The largest U.S. seller of overstocked items forecast as much as 35 percent more first-quarter profit than analysts estimated, according to Bloomberg data. The shares rose the most in the S&P 500, gaining $3.87, or 22 percent, to $21.25.

Tyson Foods Inc. rose $1.12, or 7.5 percent, to $16.04. The biggest U.S. meat producer advanced after JBS SA, the world's largest beef producer, agreed to pay $1.27 billion in cash and stock for assets in the U.S. and Australia, including the beef unit of pork producer Smithfield Foods Inc. Smithfield rose $1.62, or 5.8 percent, to $29.50.

New York Times Co. fell 41 cents to $18. The owner of the namesake newspaper and the Boston Globe may have its Baa1 debt rating reduced by Moody's Investors Service because of declining advertising sales.

PDL Biopharma Inc. tumbled $4.62 to $11.22. The developer of technology to make cancer drugs more effective abandoned an effort to sell itself after failing to receive a ``firm offer.''

Lehman Brothers Holdings Inc. downgraded the stock to ``equal weight'' from ``overweight,'' and Merrill Lynch & Co. reduced its share-price estimate by 24 percent to $19.

Economy Watch

ADP & Macroeconomic Advisors said private payrolls lost 23,000 jobs in February. Economists surveyed by Bloomberg forecast a gain of 18,000.

Productivity in the U.S. grew faster than the economy in the fourth quarter as businesses reduced employees' hours to rein in costs. Productivity, a measure of efficiency, rose at a revised annual rate of 1.9 percent after a 6.3 percent gain in the third quarter, the Labor Department said. Unit labor costs, which are adjusted for efficiency gains, rose at a 2.6 percent rate, compared with the Bloomberg survey median forecast of 2.1 percent.