(Bloomberg News) U.S. stocks advanced, sending the Standard & Poor's 500 Index toward the highest level since August, on speculation European leaders are moving closer to an agreement to contain its sovereign debt crisis.
Bank of America Corp. and Morgan Stanley rallied at least 1.4 percent, following gains in European lenders. McDonald's Corp., the world's biggest restaurant chain, added 2.7 percent after profit jumped 8.6 percent as U.S. store sales increased. Honeywell International Inc. rose 5.1 percent as a recovery in commercial aerospace helped earnings climb 44 percent.
The S&P 500 added 1.7 percent to 1,235.56 as of 11:37 a.m. New York time, the highest on a closing basis since Aug. 3, two days before S&P stripped the U.S. of its AAA credit rating. The benchmark gauge was up 0.9 percent this week. The Dow Jones Industrial Average advanced 210.67 points, or 1.8 percent, to 11,752.45 today, erasing its 2011 decline.
"There's a sense that Europe will come out with something that will calm down imminent fears of the crisis escalating out of control," James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $360 billion, said in a telephone interview. "Investors realize Europe is going to be around a while, but the U.S. economic outlook has changed quite a bit. Earnings are coming in as expected or better than expected. We're re-accelerating."
Gains accelerated after the S&P 500 climbed past 1,233.10, its intraday peak on Oct. 18 and the highest level since Aug. 4. Three rallies since the U.S. government was stripped of its AAA credit rating by S&P have stopped around 1,220, data compiled by Bloomberg show.
Burst of Trading
A burst of trading in E-Mini S&P 500 futures occurred after the index reached 1,233.10, according to data compiled by Bloomberg. Volume jumped to 31,774 contracts during 10:17 a.m. New York time, the most for any minute of the day at that point.
"The path of least resistance is higher," Christopher Verrone, head of technical analysis at New York-based Strategas Research Partners, said in a telephone interview. I'm interested to see what happens in the 1,260-1,270 range. That is when we'll get more information on how durable this advance is.''
European finance ministers meet in Brussels today to lay the groundwork for an Oct. 23 gathering of government leaders that had been the deadline for a solution to the debt crisis. A further summit was scheduled for Oct. 26 yesterday after Germany and France said the European Union needs more time to seal a "global and ambitious" accord. In the U.S., Federal Reserve Governor Daniel Tarullo said the central bank should consider resuming purchases of mortgage bonds to boost growth.
"While we won't get a definitive response from the Europeans this weekend on how best to deal next with their debt crisis, officials are still holding out hope that just a few extra days will complete the job," Peter Boockvar, an equity strategist at Miller Tabak & Co., wrote in a note today. "Markets are assuming something. Whether what is put in place actually works or not is a different discussion, markets just want satisfaction now."
American banks rallied following gains in European lenders. Bank of America added 1.4 percent to $6.56. Morgan Stanley rose 2.1 percent to $16.97.
Investors also monitored third-quarter earnings reports. Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.27 for all of 2011, according to analyst estimates compiled by Bloomberg yesterday. About three quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts' estimates.
McDonald's added 2.7 percent to $91.38. Chief Executive Officer Jim Skinner has sought to draw American diners with low- priced menu items, such as the $1 McDouble burger, as the nation's 9.1 percent unemployment rate saps consumer confidence. Sales in the U.S. were driven by fruit smoothies, Chicken McNuggets and breakfast foods, the company said.
Honeywell climbed 5.1 percent to $50.93 as the company also increased its full-year forecast. Honeywell and other U.S. manufacturers have posted earnings growth this year amid a slowing economy by keeping costs in check and expanding abroad. Aerospace sales rose 8 percent in the quarter, the company said.
Seagate Technology Plc surged 22 percent to $14.74. The world's largest maker of computer disk drives reported first- quarter earnings excluding some item of 34 cents a share, beating the average analyst estimate by 8.3 percent, Bloomberg data show. The company had its rating raised at ThinkEquity Partners and Robert W. Baird & Co.
Energy, Raw Materials
Energy and raw material producers gained as the S&P GSCI Index of commodities advanced 1.6 percent. Alcoa Inc., the largest U.S. aluminum producer, rose 2 percent to $10.15. ConocoPhillips added 2.2 percent to $71.78.
General Electric Co. dropped 1.4 percent to $16.40 as tighter profit margins in industrial businesses from energy to aviation overshadowed third-quarter growth led by the finance unit.
Companies transporting holiday merchandise may outperform the stock market as a rise in consumer spending indicates seasonal shopping may be better than forecast.
Retailers were cautious when they placed orders this summer amid concerns the economy was "falling apart" and headed for a double-dip recession, said David Ross, a Baltimore-based transportation analyst at Stifel Nicolaus & Co. Even though September retail sales rose the most in seven months, shares of trucking and airfreight companies still reflect pessimistic forecasts, he said.
"There is a greater chance of a positive holiday-shopping surprise than a negative one," said Ross, who maintains "buy" ratings on United Parcel Service Inc. and Old Dominion Freight Line Inc. If retailers are caught short after under-ordering, the peak shipping period -- typically July through September -- will occur later, he said.