US stocks rise ahead of Fed meeting

US stocks broke out of their summer trading range as investor confidence was boosted by more deal activity and speculation that the Federal Reserve could introduce further quantitative easing.

The S&P 500 closed up 1.5 per cent at 1,142.71, the Dow Jones Industrial Average had gained 1.4 per cent to close at 10,753.62 and the Nasdaq Composite was 1.7 per cent higher, closing at 2,355.83.

All 10 main sectors of the S&P 500 rose, with eight rising more than 1 per cent. Financials and consumer discretionary stocks led the risers.

The benchmark index has been stuck in a trading range of 1,040 to 1,130 since mid-May and despite hovering near the top of the range all last week, it only finally broke out on Monday.

Investors speculated that the Federal Reserve Open Market Committee could take action to spur the economic recovery at its meeting on Tuesday afternoon.

But Steven Ricchiuto, chief economist at Mizuho Securities, said: “The makers of domestic monetary policy are unlikely to undertake a second round of quantitative easing at the conclusion of their upcoming deliberations.

“A slightly firmer tone in the latest ISM [manufacturing data], payroll employment and retail sales reports are likely to ease concerns among policymakers, allowing them to maintain their wait-and-see approach.”

He added that the chance of expansion is also limited because some hawks on the committee are concerned about the risk of inflation.

Investors shrugged off a worse than expected reading on the monthly housing market index.

Confidence among US homebuilders remained steady at 13, a one-year low. Economists had forecast a rise to 14 in September.

Instead, markets focused on Lennar , the housebuilder, which beat analysts’ expectations when it announced third-quarter results before the opening bell.

Wider margins on house sales and increasing revenue at its distressed investing unit lifted earnings per share to 16 cents, above
the average estimate of 6 cents.

However, the results included a rise in orders just before the expiration of the homebuyer tax credit and the company said orders fell 15 per cent after the credit was removed. Lennar jumped 8.2 per cent to $15.14.

Rival DR Horton also advanced, up 4.2 per cent to $11.05 and the broader S&P 500 homebuilders index gained 5.6 per cent.

Elsewhere, deals dominated the market with Netezza jumping 14.9 per cent to $28.27 after IBM agreed to buy the maker of analytics technology and data storage appliances.

The deal, worth about $1.7bn or $27 a share in cash, is at a 9.8 per cent premium to Friday’s closing price.

Shares in IBM, which has said it plans to spend about $20bn on acquisitions in the next five years, gained 1.2 per cent to $131.79.

Teradata , a company that provides similar services to Netezza, advanced 7.5 per cent to $37.04. L-1 Identity Solutions soared 20 per cent to $11.64 after French defence contractor Safran said it will buy the core biometric identity business for $1.1bn. US -listed shares of Safran rose 7.9 per cent to $26.60.

In a separate deal, L-1 will sell its government consulting unit to BAE Systems for almost $300m. BAE’s US-listed shares added 1.4 per cent to $20.80.

There has been increased interest in biometric technology with industrial conglomerate 3M buying a biometric identity business, Cogent, just last month.

Internet Brands, the website operator, surged 44.5 per cent to $13.16 after it agreed to be bought by an affiliate of Hellman & Friedman Capital Partners for about $640m or $13.35 share.

In financials, JP Morgan Chase advanced 2.8 per cent to $41.18 and Bank of America rose 2.5 per cent to $13.74.

Diamond Hill Investment Group gained 18.9 per cent to $71.75 after the investment management service provider said it would pay a special dividend of $13 a share.

Discover Financial climbed 3.8 per cent to $16.16 as consumers spent more on their credit cards, leading to a better-than-expected quarterly profit.