US stocks hit fresh highs

A crisis of confidence in supermarket stocks was not enough to put off bullish investors on Tuesday as Wall Street climbed to fresh highs for almost a year.

The S&P 500 closed at its highest level since last October after economic data and a number of stock upgrades boosted sentiment.

As oil swelled above the $70 level and other commodities gained momentum in afternoon trading, the market was also lifted by energy, industrial and materials stocks. General Electric climbed 4.2 per cent to $16, while Alcoa rose 8.1 per cent to $13.99. Rising commodity prices have helped power Wall Street’s rally over the past two weeks.

The S&P closed 0.3 per cent higher at 1,052.63. The Nasdaq rose 0.5 per cent to 2,102.64, while the Dow Jones Industrial Average was up 0.6 per cent at 9,683.41.

Retail sales had initially given investors confidence. In August, sales rose by the most in more than three years, boosted by the cash-for-clunkers car buying programme and signs of extra spending by consumers.

In other data, the New York Federal Reserve Bank said that its “Empire State” manufacturing activity index rose in September to 18.88 from 12.08 in August.

Technology stocks also pushed the market higher from the opening bell. Ebay was up 1.3 per cent at $24.14 after Piper Jaffray upgraded the shares of the online auctioneer. Also on the upgrade list was Yahoo, which was raised to “outperform” from “market perform” by Sanford C. Bernstein. The stock was up 5.4 per cent at $16.41.

But consumer stocks dragged the indices into the red for brief periods during the day and continued to limit gains.

Kroger, the supermarket chain, was one of the worst casualties in the consumer sector. The shares fell 7.5 per cent to $20.46 after the group posted second-quarter profit below estimates and reduced its full-year outlook. The company, which also operates Ralphs and Food 4 Less stores, has come under pressure to slash its prices in the recession to compete with low-price competitors such as Wal-Mart.

Shares of rival Safeway also fell 3.6 per cent to $19.48 after the results
from Kroger, while Supervalu slipped 3.6 per cent to $15.73.

Best Buy, the consumer electronics chain, also hit confidence in the sector after the retailer said second-quarter profit fell 22 per cent to $158m. The shares fell 5.2 per cent to $38.32.

Johnson & Johnson said it would reduce by $115m to $885m the amount it would pay for an 18.4 per cent stake in Elan. The revised terms of the deal are designed to appease a dispute between Elan and Biogen, its US partner. Shares in Johnson & Johnson were down 0.3 per cent at $60.15.

Financial stocks also led the market lower initially. It emerged that Citigroup was exploring options to facilitate a sale of the government’s 34 per cent stake in the troubled financial giant. Citi fell 8.9 per cent to $4.12. Shares in Citi closed at $4.52 on Monday, up from a low of $2.31 in March.

The US authorities received more than 7bn shares in the troubled financial group at $3.25 each, after converting $25bn of preferred stock into common equity at the end of July. The share exchange boosted Citi’s ratio of tangible common equity to assets, providing it with a greater buffer of loss-absorbing capital.

Bank of America lost 1.2 per cent to $16.79 and JPMorgan slipped 1.3 per cent to $43.19. After reporting increases in credit-card write-offs, Discover Financial Services fell in early trading but closed up 0.8 per cent to $15.14.

Healthcare stocks took another battering as President Barack Obama reiterated his plans to curb medical expenses through sector reform. UnitedHealth fell 3.7 per cent to $27.70 and WellPoint dropped 1.8 per cent to $53.16.

Kraft also came back into focus after its recent take-over bid for Cadbury. The shares slipped 0.1 per cent following early gains after the company announced plans to hold talks with the British chocolate maker. It also said it did not need to sell any of its other operations or brands in order to afford its $16bn bid.