U.S. stocks advance as housing data beats economists’ estimates

U.S. stocks rose, following yesterday’s slump in the Standard & Poor’s 500 Index, as better- than-estimated data on housing starts added to expectations the world’s largest economy will weather Europe’s debt crisis.

Commodity, industrial and financial industries had the biggest gains in the S&P 500 among 10 groups. PulteGroup Inc. and Lennar Corp. added more than 5.4 percent as builders broke ground on more houses than at any time in the past 19 months. Alcoa Inc., Caterpillar Inc. and Bank of America Corp. advanced at least 2.6 percent. Jefferies Group Inc. climbed 22 percent as the investment bank reported profit that beat estimates.

The S&P 500 rose 2.6 percent to 1,236.22 at 12:49 p.m. New York time, as 492 out of 500 stocks gained. The gauge slumped 1.2 percent yesterday. The Dow Jones Industrial Average added 289.91 points, or 2.5 percent, to 12,056.17 today. The Russell 2000 Index of small companies rallied 3.5 percent to 733.35.

“The U.S. market is the most inviting,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “It’s a combination of being relatively inexpensive plus the fact that our economy is warming when Europe is going cold. When you look at the cumulative evidence, the housing report is one more brick in the wall and an important indication of strengthening.”

Stocks rose as housing starts increased 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010. Last week, other reports showed that manufacturing accelerated and the fewest workers in three years filed claims for jobless benefits.

Average Since 1954

Today’s rally trimmed this year’s decline in the S&P 500 to 1.7 percent. The benchmark measure had tumbled 12 percent from a three-year high in April through yesterday amid concern about a global economic slowdown as Europe struggles to tame its debt crisis. It is trading for 13 times reported earnings, compared with the average since 1954 of 16.4 times, according to data compiled by Bloomberg.

“It looks like our economy is doing pretty good despite the challenges of Europe,” said Michael Strauss, who helps oversee about $27 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. He spoke in a telephone interview. “We’re seeing better economic news and the housing report fits right in line with that. It’s another piece of news that’s helping the stock market.”

A measure of homebuilders in S&P indexes jumped 5.5 percent as all 12 stocks gained. PulteGroup, the largest homebuilder by revenue, climbed 8.6 percent to $6.07. Lennar increased 5.4 percent to $19.50.

Alcoa, Caterpillar

The Morgan Stanley Cyclical Index of companies which tend to benefit the most from economic growth added 3.2 percent. The Dow Jones Transportation Average jumped 2.9 percent. Alcoa, the largest U.S. aluminum producer, increased 2.6 percent to $8.75. Caterpillar, the world’s largest construction and mining- equipment maker, rose 3.9 percent to $90.64. Bank of America, which yesterday ended at the lowest level since March 2009, gained 3.1 percent to $5.14.

Jefferies rallied 22 percent to $14.40. The investment bank that’s been fighting speculation about its financial strength rose after fiscal fourth-quarter profit beat estimates on a recovery in fixed-income trading. Jefferies may not have to raise more equity after reducing assets on its balance sheet, Sean Egan of Egan-Jones Ratings Co. said today on CNBC.

Talks End

AT&T Inc. rose 1.1 percent to $29.05 as its $39 billion bid to acquire Deutsche Telekom AG’s T-Mobile USA came to an end yesterday. AT&T failed to convince the Justice Department, which sued to block the transaction in August, that it could remedy the market impact of absorbing T-Mobile, the nation’s No. 4 mobile-phone operator.

Rival Sprint Nextel Corp. jumped 3.9 percent to $2.25. Juniper Networks Inc., a maker of networking equipment, surged 8.6 percent to $19.68 for the second-biggest gain in the S&P 500.

ConAgra Foods Inc. gained 3.3 percent to $26.01. The maker of Hebrew National hot dogs reported second-quarter earnings excluding some items of 47 cents a share, compared with the average estimate of 43 cents a share.

CVS Caremark Corp. rose 7.4 percent to $39.28. The largest U.S. distributor of prescription drugs boosted its quarterly dividend to 16.25 cents a share from 12.5 cents a share.

Red Hat Inc. tumbled 8.1 percent to $42.30. The largest seller of the open-source Linux operating system reported that billings, a predictor of revenue, rose 23 percent from a year earlier for the period ended Nov. 30. That was lower than the 24 percent growth projected by Walter Pritchard, an analyst at Citigroup Inc., according to a note yesterday.

Green Giant

General Mills Inc. declined 1.9 percent to $38.83. The maker of Cheerios and Green Giant frozen vegetables reported second-quarter earnings excluding some items of 76 cents a share, missing the average analyst estimate of 79 cents a share.

Consumer stocks are defying this year’s drop in the S&P 500 regardless of their ties to the economy, and UBS AG says they will keep beating the market next year.

Makers of food, beverages and other consumer staples in the S&P 500 gained 7.1 percent as a group through yesterday. Their index was the year’s second-best performer among the 10 main industry groups in the benchmark, and only trailed utilities. An index of retailers, media companies and other industries that rely on consumers’ discretionary index added 0.3 percent.

“The American consumer is alive and well and consumer companies are likely to post solid results in 2012,” Jonathan Golub, the chief U.S. market strategist at UBS, wrote yesterday in a report.