Leading Economic Indicators Index in U.S. Rose 0.1% (Update1)

May 19 (Bloomberg) -- The index of leading U.S. economic indicators rose in April for a second month, a sign the economy may not keep weakening in the second half of the year.

The Conference Board's gauge increased 0.1 percent for a second month, better than forecast, the New York-based research group said today. The measure points to the direction of the economy over the next three to six months.

Seven consecutive reductions by the Federal Reserve in the benchmark interest rate and its efforts to pump more money into the banking system, combined with $117 billion in tax rebates, may promote borrowing and spending. The boost may help the economy start to recover in the second half of the year.

``This particular slump seems to be milder than any recession since the Great Depression,'' said John Lonski, chief economist at Moody's Investors Service in an interview with Bloomberg Television in New York. ``Growth is decidedly subpar.''

The index was forecast to be unchanged, according to the median estimate of 53 economists surveyed by Bloomberg News. Projections ranged from a drop of 0.6 percent to a 0.2 percent gain.

The increase in March was the first gain since September.

Treasury securities were little changed after the report, while stocks added to gains. The Standard & Poor's 500 index was up 0.4 percent to 1,431 at 10:11 a.m. in New York.

Smaller Declines

A decline in the index of around 4 percent to 4.5 percent at an annual pace over six months is one signal a recession is imminent, according to the Conference Board. The gauge met that requirement in January, when it dropped at a 4.7 percent pace.

The gauge through April was down at an annual pace of 2.3 percent over the prior six months.

``The small increases in the leading index in both March and again in April could be a signal that the economy may not weaken further,'' Ken Goldstein, a Conference Board economist, said in a statement.

Six of the 10 indicators in today's report contributed to the gain in the index, led by rising stock prices and a widening spread between the Fed's benchmark rate and the yield on the 10- year Treasury note, also known as the yield curve.

A slump in consumer expectations about the economy and a decline in manufacturing hours were among the components that restrained the index.

The S&P 500 index rose 1.2 percent over the month after reaching a 10-year low in early March.

Sentiment Drops

The Reuters/University of Michigan sentiment index decreased in April to a 26-year low, while its expectations gauge fell to the lowest level since 1990. The measure of prospects dropped even more this month, sending sentiment to a 28-year low, the group reported last week.

``The generally poor economic outlook, including well-known housing pressures, rising food and fuel prices and a more negative employment picture eroded consumer confidence and impacted discretionary purchases for the home,'' Robert A. Niblock, chief executive officer at Lowe's Cos., the world's second-largest home-improvement retailer, said today in a statement.

Mooresville, North-Carolina-based Lowe's said first-quarter profit fell and forecast more declines for the year as the worsening housing slump slowed spending on remodeling.

Factories Hurting

The real-estate recession is also hurting manufacturing as owners can no longer count on tapping increases in home equity to buy automobiles or furniture. Sales of cars and light trucks in April slid to a 14.4 million annual rate, the fewest since 1998, according to industry figures.

Factories trimmed employee workweeks by 18 minutes last month, the most since June 2004, according to figures from the Labor Department. Manufacturing output fell 0.8 percent in April, the biggest decline since September 2005, the Fed said last week.

While economists forecast growth will pick up later this year, the rebound may not be vigorous.

The economy will grow at a 1.2 percent rate for all of 2008, compared with a 2.2 percent pace in 2007, according to the median estimate of economists surveyed earlier this month.

After growing at a 0.5 percent annual pace this quarter, the weakest in 17 years, consumer spending will climb at a 2.3 percent pace in the third quarter as the bulk of the rebates are spent, according to the survey median. Spending, the biggest part of the economy, may then slow once again in the last three months of the year.

Risks for Consumers

Falling home prices, mounting job losses and soaring prices for food and fuel will continue to threaten American consumers for much of the year.

Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said in a Bloomberg Television interview May 6 that the economy was ``sliding into a recession.''

``If you compare where the economy is now, with where it began at the beginning of the year, just about every indicator is down,'' he said.

The Cambridge, Massachusetts-based National Bureau of Economic Research that Feldstein heads defines recessions as a ``significant'' decrease in activity over a sustained period of time. The declines would be visible in gross domestic product, payrolls, production, sales and incomes. In November 2001, the NBER affirmed that a recession had begun eight months earlier.

Obama Shifts to Countering Republican Attacks on His Patriotism

May 19 (Bloomberg) -- The flag pin that appeared on Barack Obama's lapel is just the opening salvo of Operation Patriotism for the Democratic presidential candidate.

The Illinois senator overcame his longstanding reluctance to wear a flag pin after he was presented with one by a veteran in Charleston, West Virginia, on May 12. Obama is trying to head off what advisers expect to be a Republican effort to impugn his patriotism. His campaign plans to emphasize his family's military ties, his work on behalf of veterans and his life story, said Richard Danzig, an adviser who was Navy secretary under former President Bill Clinton.

Obama, 46, may be vulnerable on the patriotism question because he doesn't have a personal narrative that people can easily understand, and not wearing a flag pin and other issues have ``put him on the non-patriot side,'' said Peter Hart, a Democratic poll-taker unaligned with a candidate.

``He has to plant his roots,'' Hart said. ``His mother has to become an important part of his story and he has to show people he lives an all-American life, with his children and other things, so voters can say, `we understand that; he's one of us.'''

With a lead in delegates to the nominating convention over his Democratic rival, New York Senator Hillary Clinton, Obama is pivoting to a general-election campaign against the presumptive Republican nominee, Arizona Senator John McCain. Obama's advisers are trying to avoid the fate of the 2004 Democratic candidate, Senator John Kerry of Massachusetts, whose campaign was undermined by attacks on his Vietnam War record by the Swift Boat Veterans for Truth.

Obama's Values

``It is making sure people know who Barack Obama is and his values,'' said Robert Gibbs, Obama's communications director. ``We would not let any campaign or any group of people characterize or attack Senator Obama as somebody who didn't love his country.''

Obama plans to use speeches and campaign events to reinforce his patriotic image to America by evoking his grandparent's military background. He also plans to speak sometime this summer near Punchbowl National Cemetery in Honolulu, where his grandfather is buried.

``My grandfather -- Stanley Dunham -- enlisted after Pearl Harbor and went on to march in Patton's Army,'' Obama said in Charleston. ``My grandmother, meanwhile, worked on a bomber assembly line while he was gone, and my mother was born at Fort Leavenworth.''

Uniquely American

Obama's advisers said he would describe his life story as a uniquely American one. The campaign also will roll out more supporters among retired military figures and younger veterans, and plans to highlight Obama's legislative record.

That strategy was on display at a May 13 campaign event in Cape Girardeau, Missouri, where Democratic Senator Claire McCaskill introduced him by describing his work on the Senate Veterans' Affairs Committee.

``There has been a lot of misinformation out there about who this man is and how much he loves his country,'' McCaskill, 53, said in an interview. ``It is one of the things he needs to communicate about.''

The flag and other patriotic props will be displayed more often, Danzig said.

``It's very important to convey a sense that these symbols don't belong to one party or another, they belong to all the American people,'' said Danzig, 63, a fellow at the Washington- based Center for Strategic and International Studies.

McCain's Service

As he runs against McCain, who spent five-and-a-half years as a prisoner of war in North Vietnam, Obama plans to argue that patriotism signifies more than a flag pin or military service.

``When our troops go into battle, they serve no faction or party, they represent no race or region, they are simply Americans,'' Obama said in Charleston. ``Allegiance to these ideals has always been at the core of American patriotism.''

Obama told a May 12 rally in Louisville, Kentucky, that Republicans ``are going to try to run a campaign that's about me, they want you to think, maybe, Obama, you know, sometimes he doesn't wear a flag pin, sometimes his former pastor says some offensive stuff.''

Republicans said the attacks won't come from McCain, 71, who will take the high road, likely emphasizing his own service. Instead, independent groups and individual activists will be the ones pointing out Obama's liabilities.

Independent Groups

``You'll see a lot more things coming from people who aren't running the traditional 30-second ad,'' said John Feehery, a Republican strategist.

In addition to video sound-bites of his former pastor, the ammunition may include a photograph of Obama not holding his hand to his chest during the national anthem; false charges that he is a Muslim; his acquaintance with former Weather Underground member Bill Ayers; and video of Obama's wife, Michelle, saying she has never been proud of her country before this year.

To counter these attacks, Obama is calling attention to the congressional debate over an expanded G.I. Bill that helps veterans pay for college. Obama supports the bipartisan measure, while McCain doesn't.

McCain ``thinks it's too generous,'' Obama said in Charleston. ``The true test of our patriotism is whether we will serve our returning heroes as well as they've served us.''

Emerging Market Stocks Erase 2008 Loss After Commodities Rally

May 19 (Bloomberg) -- Stocks in developing countries advanced for a sixth day, erasing the MSCI Emerging Markets Index's 2008 loss, as rising oil and metals prices boosted equities from Hong Kong to Moscow.

PT Bumi Resources, Cnooc Ltd. and Gerdau SA led gains, helping the index rebound from a decline of as much as 16 percent this year. Developing nation shares are leading the steepest recovery in global equities in four years as the Federal Reserve's bailout of U.S. banks and a surge in commodity companies restored investor confidence in stocks.

``As long as we're seeing strong commodity prices, the implication is that the emerging markets are still growing,'' said Walter ``Bucky'' Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. ``The supply constraints in commodities are here for at least several more years, so these stocks should continue to do well.''

The MSCI Emerging Markets Index added 0.6 percent to 1,247.85 at 10:14 a.m. in New York. The index, which ended 2007 at 1,245.59, has quadrupled in the past five years. On average, companies in the measure trade for 15.9 times earnings, 21 percent higher than the monthly average since the start of 2002.

The worst start for global equities since 2001 has given way to the steepest recovery in four years as the Federal Reserve's bailout of U.S. banks and the surge in commodity companies restored investor confidence in stocks.

Prices Double

Bumi, Asia's biggest exporter of power-station coal, rallied 5.6 percent today, bringing its gain this year to 41 percent. The shares are at the highest in the company's 17-year trading history after Reuters reported the Jakarta-based company will sell coal to some Japanese utilities at more than double the 2007 price, citing Dileep Srivastava, Bumi's head of investor relations. Bumi's price-to-earnings ratio has almost doubled to 21.1 since its low in January.

Cnooc, China's largest offshore oil producer, added 3.4 percent in Hong Kong as crude climbed as much as 1.2 percent to $127.77 in New York. A 62 percent increase in the company's first-quarter sales sent shares up 16 percent this year.

Gerdau rose 2.2 percent to 81.80 reais. Shares of Latin America's largest steelmaker have risen 58 percent this year. The Brazilian Steel Institute said last week that domestic demand will climb at almost twice the worldwide pace as carmakers and construction companies expand production. Porto Alegre, Brazil-based Gerdau added 9 percent last week, its third-straight weekly advance. The stock now trades for 26.4 times Gerdau's earnings, 40 percent higher than at the start of the year.

Petrobras Value

Petroleo Brasileiro SA added 10 reais to 48.25. Brazil's state-controlled oil company surpassed Microsoft Corp., the world's biggest software maker, as the seventh largest company in the world by market value. Petrobras's total capitalization rose to $287.7 billion, compared with Microsoft's $279.3 billion, according to data compiled by Bloomberg.

MSCI's Emerging Markets Index rebounded almost 20 percent from its 2008 low. The Standard & Poor's 500 Index, which fell as much as 13 percent, is within 3 percent of its level on Dec. 31, as is the U.K.'s FTSE 100 Index. The MSCI World Index, which tumbled 9.5 percent last quarter, rallied 13 percent since March 17. The biggest two-month gain since June 2003 left the measure 1.8 percent lower than at the end of 2007.

Mexico, Israel, Korea

The gauge of stocks in developing countries from Mexico to Israel and Korea dropped as much as 22 percent from its Oct. 29 peak as increasing bank losses and tightening credit standards threatened to slow economic expansion worldwide. Energy and raw- material producers gained 33 percent and 36 percent since the Jan. 22 low.

OAO Lukoil, Russia's second-biggest oil producer, is up 29 percent this year. The Moscow-based company added 13 percent last week after Prime Minister Vladimir Putin said a plan for oil industry tax cuts is ready for Parliament.

Capital International Inc., a unit of Los Angeles-based asset manager Capital Group Cos., raised $2.25 billion for private-equity investments in emerging-markets, according to a statement today. That's four times the size of its prior fund.

U.S. financial stocks jumped 12 percent in the past two months as the Fed's fastest interest rate cuts in two decades and support for the rescue of Bear Stearns Cos. helped banking companies battered by $343 billion of losses and writedowns from subprime-contaminated securities.

Fears Allayed

``Two months ago, you had the capital markets fearing the world was coming to an end,'' said Michael Strauss, the Wilton, Connecticut-based chief economist and market strategist at Commonfund, which oversees about $43 billion. ``By April, you could clearly argue that the Fed not only gets it, but they're doing creative things to address it. We're not getting that type of nasty recession that the markets were priced to.''

While the market capitalization of the 1,933 companies in the MSCI World Index is down about $712 billion in 2008, the losses narrowed from $4.49 trillion in March.

Valuations rose as investors bet profits will increase. The S&P 500 trades at 23.8 times the reported earnings of companies in the index, the highest since December 2003, according to data compiled by Bloomberg. Price-to-earnings ratios of the FTSE 100 and MSCI World indexes rose more than 15 percent since January.

``Money has been flowing back into riskier, more cyclical stocks and sectors really since the Bear Stearns bailout'' on March 16, said David Chalupnik, a Minneapolis-based senior managing director at First American Funds, which oversees about $62 billion. ``We're focused on trying to take advantage of that.''

Disposable Income

Companies in the S&P 500 that rely on consumers' disposable income, including retailers and automakers, topped analysts' first-quarter earnings estimates by 11 percent, the widest margin of 10 industry groups, according to Bloomberg data.

Energy and raw-materials companies led the rally in global stocks since March as crude oil surpassed $120 a barrel and steel-sheet prices in America rose to a record $850 a ton.

U.S. Steel Corp. rose for a third day, climbing 0.8 percent to $182.64. The Pittsburgh-based company that's the second- largest U.S. steelmaker by market value rallied 77 percent since the S&P 500's low on March 10. Melbourne-based BHP Billiton Ltd., the world's largest mining company, surged 47 percent in London trading since the FTSE 100 bottomed March 17. Cia. Vale do Rio Doce, the world's biggest iron-ore producer, has gained 26 percent.

Bovespa Falls

Brazil's Bovespa index fell 0.4 percent today, paring its advance this year to 13 percent, still the best performance among benchmarks in the 20 biggest equity markets, according to Bloomberg data. Energy and raw-materials stocks account for more than 60 percent of the Brazilian market's value.

The U.S. currency's slump has enhanced returns. The Bovespa rose 24 percent in dollar terms, according to Bloomberg data.

Russia's ruble-denominated Micex index jumped 25 percent since falling to its 2008 low on Feb. 8. Lukoil lead the rebound.

MSCI's Asian index rose 17 percent from this year's low on Jan. 22 and is 1.9 percent away from erasing its 2008 loss. Taiwan's Taiex index has risen 9.3 percent this year, the region's best performance, on optimism Ma Ying-jeou, to be sworn in as the island's president tomorrow, will forge closer ties with China and boost domestic spending.

Oil companies' $70 billion income in the last two quarters skewed profits in the S&P 500 index. Earnings would have tumbled 26 percent and 30.2 percent without their contribution, the biggest decreases since at least 1998.

``This is a bear market rally,'' said Gregor Smith, a London-based fund manager at Daiwa Asset Management who helps oversee $1 billion. ``The economic fundamentals don't really support where the markets are at the moment.''

U.K. house prices posted the first annual decline since 1996 last month, while single-family home construction in the U.S. fell to a 17-year low.

The MSCI World Index dropped in the first quarter after banks from Citigroup Inc. to UBS AG posted record losses and speculation increased that the world's biggest economy was headed into a recession.

The index bottomed on March 17 after the Fed supported JPMorgan Chase & Co.'s takeover of Bear Stearns and agreed to become the lender of last resort to the biggest securities firms. The Fed cut its target for the overnight lending rate between banks four times this year, from 4.25 percent to 2 percent.

``It's not as dire as people thought,'' said Dean Junkans, who helps oversee $260 billion as chief investment officer at Wells Fargo & Co.'s wealth-management division in Minneapolis. ``The earnings that have come in have been pretty good. Instead of running for the hills, people are starting to look for opportunities.''

U.S. Stocks Rise, S&P 500 at 4-Month High; Union Pacific Climbs

May 19 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor's 500 Index to a four-month high, after analysts advised clients to buy transport and technology shares and an index of economic indicators unexpectedly advanced.

Union Pacific Corp., the largest U.S. railroad, climbed to a record after Stifel Nicolaus & Co. upgraded the shares to ``buy.'' Texas Instruments Inc. led chipmakers to their highest level of the year as Citigroup Inc. increased its profit forecast and Goldman Sachs Group Inc. said semiconductor makers will benefit from a reduction in supply. Amazon.com Inc. rose the most in three weeks after Goldman said the largest Internet retailer may grow at least 20 percent over the next 5 to 10 years.

The S&P 500 added 7.09 points, or 0.5 percent, to 1,432.44 at 11:01 a.m. in New York. The Dow Jones Industrial Average increased 47.55, or 0.4 percent, to 13,034.35. The Nasdaq Composite Index gained 11.39, or 0.5 percent, to 2,540.24. About three stocks advanced for every two that retreated on the New York Stock Exchange.

``Earnings just don't seem as bleak as everyone expected,'' said Thomas Nyheim, a Greenville, Delaware-based portfolio manager who helps oversee about $7 billion at National Penn Bancshares Inc. ``The valuations in technology look pretty good.''

The market extended a four-day rally that helped the S&P 500 recover from its worst start to a year since 2001. The benchmark for U.S. equities has climbed 12.5 percent from its 2008 low on March 10 as more than two-thirds of companies in the index that reported results topped analysts' estimates, according to data compiled by Bloomberg.

Leading Indicators

Stocks also climbed after the index of leading U.S. economic indicators rose in April for a second month, a sign the economy may not keep weakening in the second half of the year. The Conference Board's gauge increased 0.1 percent for a second month, better than the unchanged reading forecast by economists in a Bloomberg survey.

Union Pacific advanced $5.33 to $158.33. The Omaha, Nebraska-based railroad was upgraded to ``buy'' from ``hold'' by Stifel Nicolaus analysts led by John Larkin, who said the shares may climb to $182 in the next 12 months as the company boosts prices and increases productivity.

Texas Instruments added 92 cents to $32.71. The second- largest U.S. semiconductor maker was raised to ``buy'' from ``hold'' by Citigroup analysts, who increased their earnings estimates through 2009 and raised their share-price forecast by more than 25 percent to $39.

Intel Corp., the world's largest chipmaker, added 15 cents to $25.15. Micron Technology Inc., the largest U.S. maker of computer-memory chips, increased 11 cents to $8.95.

Goldman said investors should buy shares of U.S. chipmakers because a reduction in excess supply of semiconductors will spur a rebound in the stocks. Analyst James Covello raised his rating on the industry to ``attractive'' from ``neutral.''

Amazon, Yahoo

Amazon.com Inc. rose $2.87 to $79.33. The world's largest Internet retailer was added to the ``conviction buy'' list at Goldman, which said the company may grow at least 20 percent over the next 5 to 10 years.

The S&P 500 Information Technology Index trades for 24.5 times the reported earnings of companies in the index, down from 26.7 at the start of the year and 45 percent below the monthly average over the past five years, according to Bloomberg data.

Yahoo! Inc., owner of the second-most popular Web search engine, gained 34 cents to $28. Microsoft Corp., the world's biggest software maker, said it's exploring an agreement with Yahoo that stops short of a full takeover, after failing to agree on a merger earlier this month. Microsoft said it ``reserves the right'' to reconsider its bid to buy all of Yahoo. Microsoft shares slipped 30 cents to $29.69.

Lowe's Drops

Lowe's Cos. dropped 83 cents to $24.06. First-quarter profit fell 18 percent and the retailer forecast more declines for the year after the worst U.S. housing slump in more than 25 years slowed spending on remodeling. The chain now sees sales growth of 1 percent this year, down from the 3 percent gains it forecast earlier this year.

Goldman Sachs Group Inc., the biggest U.S. securities firm, declined $1.40 to $185.74. Lehman, the fourth-largest, lost 44 cents to $43.20. Morgan Stanley, the second-biggest, dropped 47 cents to $46.74.

Citigroup analyst Prashnant Bhatia said the firms may also take losses related to sales of leveraged loans and mortgage- related securities.