US stocks rebounded on Monday after a global equity sell-off last week, as optimism about earnings resurfaced and concern about credit conditions eased. Financial shares, which have borne the brunt of fallout from tightening credit markets, bounced back in part after ratings agency Standard & Poor's upgraded Morgan Stanley's debt.
Sentiment about the sector also improved after the bailout of a hedge fund steeped in subprime mortgage market losses and a home-lending unit of GMAC reported narrowing losses. General Motors Corp shares rose 4.9 percent, boosting the Dow.
Overall, analysts now expect a stronger second quarter than just a week ago. Expectations for quarterly earnings growth by Standard & Poor's 500 companies were raised to 6.8 percent compared with the year-ago period from 6.0 percent, according to Reuters Estimates.
"Maybe people had some time to reflect over the weekend, took a deep breath and saw that second-quarter earnings have been good - we're comfortably beating the modest expectations," said Doug Peta, market strategist at J&W Seligman in New York.
The Dow Jones industrial average gained 92.84 points, or 0.70 percent, to end at 13,358.31. The Standard & Poor's 500 Index rose 14.96 points, or 1.03 percent, to 1,473.91. The Nasdaq Composite Index climbed 21.04 points, or 0.82 percent, to 2,583.28.
Stocks had traded erratically throughout the day - flip-flopping between positive and negative territory - before the rally gathered steam in the afternoon. Shares of industrial companies gained after Ingersoll-Rand Co Ltd said it planned to sell its Bobcat machinery business and two other units to South Korea's Doosan Infracore.
Ingersoll-Rand shares rose 7.5 percent to $51.77, while the S&P industrials index gained 1.5 percent. But that deal aside, there was a lack of the typical flurry of take-over and buyout announcements seen on many Mondays this past year. Tightening lending standards are threatening to slow or halt the pace of corporate buyouts, which fuelled a rally in stocks this spring.
Among financial companies lifting the Dow was credit card issuer American Express whose stock has been suffering since it posted rising write-downs of bad loans last week. Shares of American Express rose 2.7 percent to $60.14. The S&P financials index advanced 1.2 percent.
Hedge fund Citadel Investment Group, LLC took over Sowood Capital's credit portfolio following speculation last week that heavy losses might force the smaller hedge fund to shut down.
And Residential Capital LLC, or ResCap, posted a loss of $254 million, which was 72 percent smaller than the first quarter's $910 million. ResCap is owned by GMAC, the finance company once controlled by GM.
Shares of GM rose 4.9 percent to $32.61 on the New York Stock Exchange. On Tuesday lingered. Trading in American Home Mortgage Investment Corp was halted on the NYSE after its shares plunged in electronic trading before the market opened.
The mortgage lender said its banks demanded more margin after it wrote down the value of its mortgage and security portfolios. American Home Mortgage had plunged 39 percent before the opening bell to $6.39.
Trading was active on the NYSE, with about 2.03 billion shares changing hands, above last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.35 billion shares traded, above last year's daily average of 2.02 billion. Advancing stocks outnumbered declining ones by a ratio of about 7 to 4 on the NYSE and about 17 to 14 on Nasdaq.
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