Stocks Pare Gains; Banks Rise, McDonald's Slips

Stocks rose Monday following news banks will have a phased-in timeline to meet new international bank capital rules, although gains were capped as the market reached key resistance levels.

The Dow Jones Industrial Averagerose more than 40 points after trading as much as 100 points higher.

JP Morgan, Bank of America,and Alcoaled the blue chips higher. McDonald's and Exxon fell.

The S&P 500and the Nasdaqrose. Financials,materials, and technology were the strongest sectors in the S&P, while consumer staples and telecom slumped.

The banks were boosted by news they have until 2018 to comply with new Basel III banking capital rules, and the fact the bank capital rules are not as stringent as feared.

The news lifted the whole sector, including Citigroup and Wells-Fargo and prompted Keefe, Bruyette and Woods to upgrade European banks to "overweight" from "neutral." Regional Huntington Bancshares jumped after Sanford Bernstein raised the its rating on the stock to "outperform."

Industrials and materials stocks benefited from a report that Chinese industrial output rose 13.9 percent from the year-ago period in August. Allegheny Technology soared more than 4 percent.

The upbeat start to the trading session is consistent with two consecutive positive weeks so far in September. In the first half of the month, the major averages have nearly wiped out August's losses.

The S&P 500, which reached 1,121 earlier, traded above its 200-day moving average, but is not quite ready to break out beyond 1,130, said Marc Prado, U.S. market strategist and technical analyst Cantor Fitzgerald. Once it does, the index could soar to 1,250 by year end, Prado said.

Overall, the strategist is encouraged market bears didn't get the upper hand during a holiday-shortened trading week, and said the strength in the market seen so far this month bodes well for the rest of the year. Typically September is weak as fund managers sell losses to clean up their portfolios before the end of the quarter, which often is also the end of their fiscal year.

"(The bears) were unable to move the market down last week when they had every opportunity to do so," Prado said. "If we can get up there and make it through this week and not give up ground...we're really poised below that 1,130 level for any kind of break out to really reach momentum."

Elsewhere in financial news, Citigroup cut third quarter profit estimates for Goldman Sachs and Morgan Stanley, citing a slowdown in trading activity.

In merger and acquisition news, Hertz Global beat AvisBudget Group to buy Dollar Thriftyafter it raised its offer to $1.56 billion, or $50 per share.

And Hewlett-Packard said it is near a deal to buy cybersecurity firmArcSight for $1.5 billion in cash.

Meanwhile Genzyme , which rejected an offer from Sanofi-Aventis , agreed to sell its genetic testing businessto Laboratory Corp of America Holdings for $925 million in cash.

Compensation claims from the Gulf of Mexico oil spill will be less than the $20 billionBP had set aside in a claims fund, according to analysts at Citigroup who met with incoming BP CEO Bob Dudley.

Xerox shares soared to lead the S&P 500 higher, after a positive report on the company in Barron's.

Congress returns from its month-long break this week, with the small business jobs bill one of the items topping its agenda. Many political analysts see that as the last hope for the Democrats on improving the job market ahead of the November elections.

Energy stocks were modestly higher after news of strength in Chinese manufacturing and the continued shutdown of a major pipeline from Canada to the Midwest. Enbridge shares were lower as the pipeline company sought to fix a leaky section of pipe in Illinois. Oil traded above $77a barrel.

Meanwhile, Exxon shares slipped after Raymond James cut the oil giant's stock to "market perform" from "outperform," and Deutche Bank cut Exxon's rating to "hold" from "buy." Deutche Bank cited Exxon's exposure to the unconventional U.S. natural gas market, and cut Exxon's price target to $65 from $70.

A123 Systems , which makes rechargeable lithium-ion batteries and battery systems, is soaring after the company announced the opening of the largest lithium-ion battery manufacturing plan in North America.

The U.S. Treasury will release data on the budget deficit for August at 2 p.m., but otherwise no major economic releases or earnings are scheduled for Monday. Several important pieces of data are due out later this week including retail sales on Tuesday and industrial production on Wednesday.

On the Calendar:

MONDAY: Treasury budget
TUESDAY: NFIB small business optimism, retail sales, IBD/TIPP economic optimism index, business inventories, UN General Assembly, API weekly report; before-the-bell earnings from Kroger and Best Buy
WEDNESDAY: MBA mortgage applications, Empire State manufacturing survey, import and export prices, industrial production, weekly oil inventories
THURSDAY: PPI, current account, jobless claims, Phili Fed survey; before-the-bell earnings from FedEx, after-the-bell earnings from Oracle and Research In Motion
FRIDAY: CPI, consumer sentiment

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