U.S. Stocks Advance as Fed Signals Plans to Leave Rates Low

April 6 (Bloomberg) -- U.S. stocks rose for a third day as the Federal Reserve suggested it plans to leave its benchmark interest rate at a record low to safeguard the economic recovery and banks rallied on analyst upgrades.

SunTrust Banks Inc. rose 3.6 percent as Credit Suisse Group AG said the lender may be a takeover target, while Regions Financial Corp. jumped 6.1 percent as its share-price estimate was lifted. Massey Energy Co. fell 11 percent after an explosion at a coal mine in West Virginia killed 25 workers and left four missing. Benchmark indexes climbed to their highs of the day after minutes from the last Fed policy meeting showed some policy makers warned of raising rates too soon.

“Overall, the momentum remains positive,” said Alan Gayle, a money manager at RidgeWorth Investments in Richmond, Virginia, which oversees $63 billion. “The economic data of late is surprising to the upside and April tends to be a fairly good month from a seasonal perspective.”

The Standard & Poor’s 500 Index increased 0.3 percent to 1,191.43 at 2:45 p.m. in New York after erasing a 0.4 percent slide. The Dow Jones Industrial Average rose 10.27 points, or 0.1 percent, to 10,983.82 after falling as much as 46 points earlier.

U.S. equities opened lower on concern a yearlong rally left the S&P 500 too expensive after the benchmark gauge closed at an 18-month high yesterday. The index is trading at 19 times the reported operating profits of its companies, the highest price- earnings ratio this year, according to Bloomberg data.

Stocks turned higher as the minutes from the Fed’s March meeting showed officials saw signs of a strengthening recovery while warning it could be hobbled by high unemployment and tight credit.

“While recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth,” minutes of the March 16 Federal Open Market Committee released today in Washington showed.

Stocks rose yesterday after a report April 2 showed the biggest increase in jobs in three years. Releases on April 5 showing growth in service industries and home sales boosted optimism an economic recovery may be gathering steam.

Regional banks climbed after Credit Suisse said SunTrust may be a target for overseas financial companies. The firm also increased its price estimate for Regions Financial Corp. to $8 from $7. SunTrust climbed 3.6 percent. Regions rallied the most in the S&P 500, adding 6.1 percent to $8.69.

Financial companies gained the most in the S&P 500 among 10 groups, led by bank stocks. Eight industry groups in the benchmark index declined, while two advanced.

U.S. large-cap bank shares were raised to “market weight” from “underweight” at Wells Fargo & Co., which said “fundamentals and economy support a more positive outlook.”

El Paso Corp. rose after winning regulatory approval for its biggest expansion project, the $3 billion conduit that will carry gas from a trading hub in Opal, Wyoming, to interconnections near Malin, Oregon. Shares of the owner of the longest U.S. natural-gas pipeline network climbed as high as $11.85, the highest intraday price since October 2008.

Massey Explosion

Massey slumped 11 percent to $48.81, its biggest intraday decline since July, after the explosion.

CA Inc., the second-largest maker of software for mainframe computers, fell 1.8 percent to $23.43 after saying 2010 profit will be at the low end of its forecast range and it will cut about 1,000 jobs.

The S&P 500 has rallied 76 percent since March 2009 through yesterday as the Federal Reserve maintained record low interest rates and the economy began to recover from the worst recession since World War II. During the first quarter the gauge rallied 4.9 percent, the biggest advance to start a year since 1998.