U.S. Stocks Rise a Second Week on Oil's Fall, Rate-Cut Optimism

Oct. 7 (Bloomberg) -- U.S. stocks rallied this week, pushing the Dow Jones Industrial Average to a record, as oil fell the most since March and investors predicted the Federal Reserve will soon reduce its benchmark interest rate.

Starbucks Corp., the world's largest coffee-shop chain, led merchants higher as September sales at U.S. retailers increased more than analysts estimated amid plunging gas prices. Industrial shares gained on speculation lower rates will spur growth.

``I wouldn't be surprised if the Fed starts cutting interest rates,'' said Komal Sri-Kumar, who helps manage $130 billion as chief global strategist at TCW Group Inc. in Los Angeles. ``That would be very positive for the stock market.''

Harrah's Entertainment Inc. surged on a $15.1 billion takeover offer for the world's largest casino operator. Pharmacy chains and drug distributors dropped after Wal-Mart Stores Inc., the world's largest retailer, said it would cut prices on some generic drugs at more stores.

The Dow industrials added 1.5 percent to 11,850.21 this week. The 110-year-old measure exceeded its prior peak of 11,722.98 set on Jan. 14, 2000. The S&P 500 climbed 1 percent to 1349.58. Both had back-to-back weekly gains for the first time since August.
The Nasdaq Composite Index rose 1.8 percent to 2299.99.

Inflation concern receded, prompting the rally and encouraging optimism about rate cuts. Oil dropped 5 percent, the biggest weekly loss and first weekly close below $60 a barrel since March. Crude for November delivery slipped to $59.76 a barrel in New York.

`Good Time for Stocks'
Service industries, accounting for about 90 percent of the economy, expanded in September at the slowest pace in more than three years, according to the Institute for Supply Management.
Fed Chairman Ben S. Bernanke said a housing slump will lop about a percentage point off economic growth in the second half and limit expansion next year. His comments reaffirmed a view that the central bank is done raising borrowing costs.

``It's a good time for stocks,'' said Harvey Hirschhorn, who helps oversee $400 billion as chief portfolio strategist at Bank of America Corp. in Charlotte, North Carolina. ``We're seeing a topping out of the inflationary pressures.''

A report yesterday showed the U.S. unemployment rate matched a five-year low in September and job growth the prior month was stronger than previously estimated, easing concern the economy is faltering.

Gauges of consumer-services and retailing stocks in the S&P 500 gained 5.1 percent and 3.4 percent, respectively, for the biggest advances among two dozen industry groups in the index this week.

Gasoline Falls
About 70 percent of retailers exceeded analysts' estimates, compared with an average 56 percent in recent years, according to Swampscott, Massachusetts-based Retail Metrics LLC, which tracks results from 56 retailers. Regular gasoline fell last week to $2.28 a gallon in the U.S., the lowest since March, according to the American Automobile Association.
Starbucks climbed 13 percent to $38.41 for the No. 2 gain in the S&P 500. Same-store sales at the world's largest coffee-shop chain rose 6 percent in September because demand for sandwiches and pumpkin-spice lattes increased. Starbucks also said it plans to more than triple its number of stores to 40,000 worldwide, 10,000 more than the previous target.
Circuit City Stores Inc., the second-biggest U.S. electronics retailer, gained 8.4 percent to $27.21.

Wendy's International Inc., the third-largest U.S. hamburger chain, completed the spinoff of Tim Hortons Inc. and said third- quarter sales at U.S. company-owned restaurants rose 4.1 percent. The shares added 7.7 percent to $33.80. Tim Hortons climbed 5.5 percent to $27.75.

Caterpillar
Industrial shares in the S&P 500 climbed 2.7 percent. Caterpillar Inc., the world's biggest maker of earthmoving equipment, advanced 3.4 percent to $68.05. It was one of the stocks Merrill Lynch & Co. this week said will be ``resilient'' amid a global economic slowdown.
Harrah's Entertainment jumped 15 percent to $76.41 for the top gain in the S&P 500. Apollo Management and Texas Pacific Group offered $81 a share for the company in what would be the fourth-largest buyout ever.

Pharmacy chains and drug distributors dropped after Wal-Mart said it will extend price reductions on some generic drugs to all its locations in Florida. Wal-Mart plans to start offering the program in other states by late November.

Walgreen Co., the biggest U.S. drugstore chain, declined 3.9 percent to $42.66. CVS Corp., the No. 2 chain, lost 8.7 percent to $29.32 for the third-steepest decline in the S&P 500.
Caremark Rx Inc., the No. 2 U.S. drug-benefit manager, fell 5.8 percent to $53.40 for the 10th-biggest S&P 500 loss.

GM, Quest
General Motors Corp. dropped 6.6 percent to $31.05 for the biggest Dow average drop. Kirk Kerkorian, who owns 9.9 percent of the world's biggest auto maker, said he wouldn't buy additional shares of the company and that his aide Jerome York resigned from its board.
The disclosures follow the breakdown this week of talks Kerkorian pushed for GM to form an alliance with Renault SA and Nissan Motor Co. He said last week he might boost his stake.
Quest Diagnostics Inc., the largest U.S. operator of medical-testing centers, tumbled after losing a contract with UnitedHealth Group Inc. that accounted for 7 percent of annual revenue. Quest fell 16 percent to $51.30, the biggest loss this week in the S&P 500.