World Crisis Online

By Nikolaj Gammeltoft and Jennifer A. Johnson – U.S. stocks rose for a second week, sending benchmark indexes to 32-month highs, as takeovers, a rebound in retail sales and Egyptian President Hosni Mubarak’s resignation bolstered investors’ optimism.

American Express Co. advanced 6.7 percent to lead gains in the Dow Jones Industrial Average. Walt Disney Co. surged 6.6 percent as the world’s biggest theme-park operator posted higher-than-estimated quarterly profit. Standard & Poor’s 500 Index consumer companies reliant on Americans’ discretionary spending climbed 3.5 percent as confidence rose. NYSE Euronext soared 17 percent after saying it was in talks to be purchased by Germany’s Deutsche Boerse AG.

The S&P 500 rose 1.4 percent to 1,329.15. The Dow added 181.11 points, or 1.5 percent, to 12,273.26. Both have advanced to the highest levels since June 2008.

“While the economy is doing well and CEOs are becoming more optimistic, the highlight of the week for us was the geopolitical events in Egypt, which couldn’t have worked out much better,” said Philip Orlando, New York-based chief equity market strategist at Federated Investors Inc., which manages $358.2 billion. “M&A continues to be a positive for the market.”

The S&P 500 has advanced 5.7 percent this year as better- than-forecast economic data and company earnings boosted confidence in the economic recovery, while the Federal Reserve continued its program of buying $600 billion in Treasuries. There have been 2,707 takeovers announced globally this year, totaling $226.2 billion, a 21 percent increase from the $186.9 billion in the same period in 2010, according to data compiled by Bloomberg.

Elevated Unemployment

Fed Chairman Ben S. Bernanke said this week the economic recovery has strengthened while unemployment will remain high “for some time.” His comments back speculation the central bank is waiting for further proof of a durable pickup in the job market as it presses ahead with its quantitative easing plan.

Initial claims for unemployment insurance fell to the lowest since July 2008. First-time applications for jobless benefits dropped by 36,000 to 383,000, less than the 410,000 projected by economists in a Bloomberg survey.

Stocks erased their losses yesterday as Mubarak said he would step down as president of Egypt and handed power to the military, bowing to the demands of protesters that have occupied central Cairo for the past three weeks demanding an end to his 30-year rule. The Market Vectors Egypt Index ETF, an exchange- traded fund that holds Egyptian shares, rallied following the announcement and posted a weekly gain of 4.2 percent.

Reaction to Egypt

“The noise coming out of Egypt as of this moment anyway has not disrupted global trade production, the U.S. economy or credit markets to unseat what’s been a fairly decent market for risk assets,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., which has about $90 billion in client assets.

U.S. retail sales increased 2.2 percent in the week ended Feb. 5 after four straight declines, the International Council of Shopping Centers said. The numbers are based on the ICSC- Goldman Sachs Weekly Chain Store Sales Index. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for the month climbed to 75.1 from 74.2 in January, the highest level in eight months as decreasing unemployment lifted Americans’ spirits.

American Express, the biggest credit-card issuer by purchases, gained 6.7 percent to $46.75. An index of companies that rely on consumer discretionary spending rallied 3.5 percent, the biggest gain among 10 industries in the S&P 500. Retailers climbed 3.4 percent, collectively, for the fifth- biggest advance when the S&P 500 is divided into 24 groups.

Theme Parks, ESPN

Walt Disney gained 6.6 percent, second-most in the Dow, to $43.41. The company said first-quarter profit rose 54 percent, beating estimates, after an increase in attendance at its theme parks and advertising sales growth at the ESPN sports channel. Sales rose 10 percent to $10.7 billion, also topping estimates.

More than 73 percent of the 348 companies in the S&P 500 that reported results since Jan. 10 have topped analysts’ per- share profit predictions, according to data compiled by Bloomberg. Confidence among U.S. small companies rose in January to the highest level in three years, as the outlook for sales and profits improved, a survey from the National Federation of Independent Business found.

McDonald’s Corp. added 2.8 percent to $76.14. The biggest restaurant chain reported a 5.3 percent rise in comparable-store sales that topped analysts’ estimates as European sales gained the most in a year. Analysts projected sales would rise 4.5 percent, according to the median of five estimates.

Healthy Food

Whole Foods Market Inc. soared 13 percent to $59.67. The largest U.S. natural-goods grocer raised its annual forecasts, buoyed by freer-spending consumers prepared to pay for healthy food. Whole Foods projected as much as $1.80 a share in 2011 earnings, compared with a previous estimate of up to $1.71.

Deutsche Boerse said it’s in advanced talks to buy NYSE Euronext in an all-stock transaction that would create the world’s biggest exchange operator, accelerating a week of takeovers that began with London Stock Exchange Group Plc’s acquisition of TMX Group Inc. Shares of NYSE Euronext, operator of the New York Stock Exchange, surged 17 percent to $38.31.

“The political reactions will be interesting to follow,” said Mike Shea, a managing partner and trader at Direct Access Partners LLC in New York. “It will be interesting to see what regulatory hurdles a merger will have to clear in Europe, and which members of the U.S. Congress will look at this as losing a slice of something that is uniquely American and react accordingly.”

Possible Sale

Big Lots Inc. posted the second-biggest gain in the S&P 500, jumping 22 percent to $41.57. The discount retailer is working with Goldman Sachs Group Inc. to explore a possible sale after receiving interest from buyout firms Thomas H. Lee Partners LP and Bain Capital LLC, according to people with knowledge of the situation.

JDS Uniphase Corp. rose the most in the stock index, surging 24 percent to $28.16. The computer-networking company had its share-price estimate increased to $30 from $25 by Stifel Nicolaus, which said the company’s sales and profit margin will expand in coming quarters.

Cisco Systems Inc. tumbled 15 percent, the most for a week since November, to $18.70. The company’s gross margin, the percentage of profit left after subtracting production costs, slid to 62.4 percent in the period that ended Jan. 29. That missed the 63.3 percent average estimate of analysts surveyed by Bloomberg. Cisco forecast profit excluding some items this quarter of 35 cents to 38 cents a share, less than the 40-cent average analyst projection.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Jennifer A. Johnson in New York at jjohnson156@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.