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NEW YORK - US stocks rallied yesterday, sending the Dow Jones Industrial Average to a record as investors speculated the worst may be over for banks and construction companies hurt by sub-prime losses.
Lennar Corporation and DR Horton, the two biggest US homebuilders, advanced after Citigroup said the industry's 50 per cent decline this year has made the stocks attractive.
Citigroup led financial shares higher after the largest US bank said it expected "a normal earnings environment" in the fourth quarter and former Federal Reserve Chairman Alan Greenspan said the credit slump may be ending.
The Dow's record caps a six-week recovery from a slump that helped wipe out almost US$2 trillion ($2.62 trillion) in US market value.
The 30-stock gauge added 191.92, or 1.4 per cent, to 14,087.55, above its previous closing high of 14,000.41 set on July 19. The Standard & Poor's 500 Index increased 20.29, or 1.3 per cent, to 1547.04, 0.4 per cent shy of a record.
The Nasdaq Composite Index gained 39.49, or 1.5 per cent, to 2740.99, the highest in six years.
"The market has realised that yeah, we had some problems with sub-prime, but it's not the end of the world," said Lincoln Anderson of LPL Financial.
"With that behind us, you think, 'Where do we stand?' Where we stand is with excellent fundamentals, and that's what's helping the market."
Stocks, which last week had their fifth straight quarterly advance, also rose after manufacturing grew in September at the slowest pace in six months and a gauge of prices declined, increasing expectations the Federal Reserve will cut interest rates at its next meeting. The S&P 500 has rallied 4.8 per cent and the Dow has added about 5.1 per cent since the Fed reduced its benchmark rate by 0.5 per cent on September 18.
Homebuilders advanced after Citigroup unit Citi Investment Research advised buying shares of Lennar, DR Horton, Pulte Homes, Centex and Ryland Group, saying the builders may rally.
"It is precisely when things have gotten this bad that the stocks start looking good," wrote Citi analysts.
A gauge of homebuilders in S&P indexes climbed 4.3 per cent as all 15 members increased.
Countrywide Financial, the largest US mortgage company, added US95c, or 5 per cent, to US$19.96.
The S&P 500 Financial Index rose 2.1 per cent, the biggest advance among 10 industry groups. Merrill Lynch, the third-largest securities firm, jumped US$2.59 to US$73.87. JPMorgan Chase, the third-biggest US bank, added US99c to US$46.81. Financial stocks are collectively the worst performers in the S&P 500 with a 4.9 per cent loss this year.
Stocks also climbed as news of deals, including Nokia Oyj's US$8.1 billion purchase of digital mapmaker Navteq spurred speculation that takeovers will re-accelerate.
Bloomberg
