U.S. Stocks End Up After GM Sales Top Forecasts

NEW YORK (MarketWatch) -- Stocks closed higher Tuesday after Dow component General Motors Corp. reported unexpectedly strong U.S. sales in August, with earlier data doing nothing to shake the view the Federal Reserve would cut interest rates in two weeks.

"I don't believe the current data is going to dissuade the Fed from doing what we believe they're going to do, and the market is looking forward to that," said Al Goldman, chief market strategist at AG Edwards. "Nothing is guaranteed, but I do think the odds favor the Fed cutting rates on the 18th."

Up most of the day after a shaky start, the Dow Jones Industrial Average added to its gains late in the session, closing 91.1 points, or 0.68% higher4, at 13,448.9.

The Dow's advance was led by automaker GM , which was up 3.8% after posting a 6.1% increase in light vehicles sales in the U.S. in August, topping estimates from analysts, who forecast a fall of about 4%.

The blue-chip advance also included Verizon Communications , shares of which were up almost 1.9%, and Exxon Mobil , up 1.8%, with shares of the largest oil producer hitting a three-week high as the price of oil advanced.

Home Depot led the Dow's declining stocks, dropping 5% and pacing a slide in retail-sector shares as well.

The home-improvement retailer said it would buy back about 289.6 million shares at $37 each, at the low end of its $37 to $42 tender range. The S&P Retail Index was off 1.6% at 487.66.

Gaining along with the Dow, the S&P 500 was up 15.4 points, or 1.1%, at 1,489.42, while the Nasdaq Composite was ahead 33.88 points, or 1.3%, at 2,630.24.

Volume was light with some traders likely still on holiday, with nearly 1.4 billion shares traded on the New York Stock Exchange, where advancing stocks beat declining issues by a margin of more than 4 to 1. At the Nasdaq, more than 1.8 billion shares exchanged hands, and advancing stocks outpaced decliners by nearly 2 to 1.

Driven

Issuing its first monthly sales report since separating from DaimlerChrysler, Chrysler LLC said it posted a 6% decline in August U.S. sales, while American Honda Motor Co. said its sales in August climbed 4.7% from a year ago. Its stock was up 1.8%.

Nissan Motor Co.'s shares fell 0.1% after the Japanese auto maker said its U.S. sales increased 6% in August compared to the year-ago period.

Mazda Motor Corp.'s Mazda North American Operations reported an 11% rise in U.S. sales for August, while Toyota Motor Corp. reported its U.S. sales fell 2.8% during the month, with the company chalking up the decline to tightened credit and lower consumer confidence. Its stock gained 1.1%.

Mitsubishi Motors North America Inc.'s August sales jumped 19% from a year earlier, while Ford Motor Co. reported a 14.4% decline in August U.S. vehicle sales, a drop that fell in line with most analysts' expectations. Its stock climbed 2.3%.

Ford was among the first as automakers geared up to report sales in the U.S. for last month, with analysts expecting the lowest levels of sales since a strike at GM nearly a decade ago.

Fed factor

Investors returned from a long holiday weekend to begin a month that has historically proved to be a negative one for Wall Street.

Stocks ended Friday and a volatile August by tallying large gains after Fed Chairman Ben Bernanke offered reassurances the central bank would act to keep the credit mess from harming the overall economy. Many analysts believe the Fed will lower its benchmark federal funds rate for the first time in more than a year when policymakers meet Sept. 18.

Data are expected to prove especially crucial with the Fed meeting just two weeks away.

"Market participants will look at this week's data to try to sense the extent to which the Fed needs to act," said Jay Bryson, global economist at Wachovia Corp.

Earlier Tuesday, the Institute for Supply Management reporte its manufacturing index registered at 52.9% in August, just shy of the consensus of analysts polled by MarketWatch and down from 53.8% in July.

Also, the Commerce Department reported a 0.4% decline in U.S. construction spending in July. Economists had forecast spending would be flat.

"The data provided no clear judgment on the economy after the credit dislocations over the past month," said analysts at Action Economics.

The 'R' word

Merrill Lynch cut earnings estimates on 12 of 15 stocks providing staffing and related services, as the broker projects a 65% chance of a U.S. recession.

The brokerage downgraded FTI Consulting to sell from neutral, Heidrick & Struggles to sell from buy, Korn Ferry International to neutral from sell and Manpower to neutral from buy. It also upgraded Kelly Services to neutral from sell and Iron Mountain to buy from neutral.

Sticking with Bear Stearns, the brokerage named Yahoo Inc. as its top pick for the next 12 to 16 months. Yahoo's shares gained 5.5%.

Pharmaceuticals traded actively, including Dow component Merck & Co. Inc. after positive results released Sunday on its experimental cholesterol drug.

Also, researchers said an experimental drug for schizophrenia developed Eli Lilly & Co. appeared safe without some of the side effects of other drugs.

Another study released during the weekend indicated drug-coated heart stents, such as those made by Boston Scientific and Johnson & Johnson , may not increase the risk of blood clots as much as previously thought.

Also on the rise, Moscow foods producer Wimm-Bill Dann reported second-quarter net income climbed 15% on 41% higher sales.

Tech time

The technology sector got a lift as the Semiconductor Industry Association reported a 2.2% rise in chip sales in July.

Shares of Dow component Intel traded up 1.9%. Banc of America Securities increased its price target to $31 from $29, citing strong demand for notebook computers.

Rival chipmaker Advanced Micro Devices advanced 1.3% after it was upgraded to neutral from underperform by Credit Suisse.

Apple Inc. saw its shares climb 4.2%. Technology research firm iSuppli said the iPhone was the top-selling smart phone in the U.S. during July, accounting for 1.8% of all U.S. mobile-handset sales during the month, and anticipation has been growing over new versions of the iPod expected to be unveiled later this week.

Losing ground, MEMC Electronic Materials Inc. on Tuesday said it expects third-quarter revenue to come in about 5% below the previously forecast $500 million.

Other markets

On the New York Mercantile Exchange, crude for October delivery gained 1.4%, or $1.04, to close at a one-month high of $75.08 a barrel. 3.

In the Nymex metals pits, gold futures gained $9.60, or 1.4%, to close at $691.50 an ounce.

In foreign exchange, the dollar was down 0.3% against Japan's currency at 116.17 yen, with the euro down 0.5% at $1.3607.

And in bonds, Treasury prices were mixed, with the benchmark 10-year note, a reference for mortgage and corporate borrowing, down 1/32 at 101 16/32 with a yield of 4.56%.

By Kate Gibson