US stocks gained for the third week in four as US troops closed in on Baghdad and some Republican Guard forces surrendered, easing concerns about a prolonged war in Iraq.
"The market is reacting to news out of Baghdad," said Christopher Schwartz, chief investment officer at Linder Asset Management, which oversees US$600 million. Stocks will rally on reports of "Saddam being captured or found dead, a new government being installed or weapons of mass destruction being found."
The Standard & Poor's 500 Index rose 1.8 percent to 878.85 for the week, paring its loss for the year to 0.1 percent. The Dow Jones Industrial Average climbed 1.6 percent to 8,277.15. The NASDAQ Composite Index gained 1 percent to 1,383.51.
Energy companies such as AES Corp and Calpine Corp posted some of the biggest weekly gains in the S&P 500 amid diminishing prospects of bankruptcies in the utility industry. Airlines including AMR Corp jumped after American Airlines avoided filing for bankruptcy protection.
Stocks resumed the advance that started the week before allied forces launched an attack against Iraq on March 19.
Benchmark indexes declined last week on speculation the conflict may last months, not weeks, though those concerns subsided with the US troops set to invade the Iraqi capital.
US armed columns gathered on the outskirts of Baghdad after taking control of the airport. As many as 2,500 Republican Guard soldiers surrendered to US forces advancing on the city, CNN reported.
"Minute by minute, if you look at the indexes, you know what's going on with the war," said Richard Sichel, chief investment officer at Philadelphia Trust Co., which handles US$800 million.
The S&P 500 is up 9.3 percent since March 12 in anticipation of a fast and successful war to oust Saddam Hussein and disarm his country.
AES, which produces power in 30 countries, surged 30 percent this week and Calpine, which operates plants in 23 US states, advanced 22 percent.
Reliant Resources Inc refinanced US$5.9 billion in debt and AES announced plans to sell US$1 billion in notes to pay off bank loans and retire other debt at a discount. The moves raised speculation that companies in the industry may not default on the money they owe creditors.
Airline stocks including Delta Air Lines Inc. posted gains after American Airlines avoided filing for protection from creditors by lowering pilot pay by 23 percent and cutting as many as 2,500 jobs. Investors had anticipated that American would follow UAL Corp's United Airlines into Chapter 11.
Delta, the third-largest US airline, jumped 9.9 percent for the week and Southwest Airlines Co, the world's biggest low-fare carrier, advanced 4.4 percent. AMR, which has lost 40 percent this year, more than doubled to US$3.95.
Stocks climbed even as reports on manufacturing, employment and factory orders pointed to slowing economic growth.
Manufacturing and services economies contracted in March, the Institute for Supply and Management said. Another report showed that the economy lost 108,000 jobs last month, three times higher than economists predicted.
"There is an absence of attention to economic indicators," Schwartz said. "The market is preoccupied with geopolitical events" and "disappointing economic news has not been fully discounted yet."
Schwartz said stocks may enter a "summer sag" as investors focus on economic and profit growth after the war ends.
"When we get back to the business of looking at corporate earnings, unemployment info and consumer confidence, we will realize that things are not as strong as they once were."
Tobacco stocks posted the biggest declines in the S&P 500 this week after Illinois legislators rejected a proposal to limit the amount tobacco companies have to deposit to appeal legal verdicts.
Altria Group Inc., parent of the world's largest cigarette maker, dropped 12 percent for the week and recorded the biggest drop in the S&P 500. Altria's Philip Morris USA unit must deposit US$12 billion by April 21 if it wants to appeal a US$10 billion lawsuit it lost about misleading advertising.
RJ Reynolds Tobacco Holdings Inc, the second-largest US tobacco company, lost 6.8 percent.
Some investors forecast stock prices will be higher by the end of this year -- pending victory in Iraq -- because valuations are attractive.
"Stocks are becoming more attractively valued," said Reisner, who has been buying shares of health care companies including Pfizer Inc. and Mylan Laboratories Inc.
The S&P 500 trades at 17 times profit forecasts, down from 21 times estimates one year ago.
"There will be justification for higher stock prices by year end," said Wayne Reisner, who helps oversee US$2 billion at Carret Investment Counselors. "Expectations for equity returns are in the high-single digits."
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