Stocks End Higher as Materials Rise, Banks Slip

Stocks sold off in the final hour of trading but ended at the highest levels since late April, as the dollar slid. Worries about the foreclosure crisis continued to temper overall market gains.

The Dow Jones Industrial Average rose more than 31 points, after rising earlier above the blue-chip index's closing high of the year of 11,205, reached on April 26.

DuPont , Kraft, and Walt Disney led the Dow higher, while Bank of America and JPMorgan fell.

The S&P 500 Index closed slightly above 1,185, a recent resistance level, while the Nasdaq also advanced. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to nearly 20.

The positive tone to the market comes after stocks posted three weeks of gains, with the Dow rising about 11 percent since September.

"I think the big news is investors are slowly taking the double-dip deflation story off the table," said Jack Ablin, chief investment offier at Harris Private Bank. "If policy makers are successful at regenerating inflation, than risk-oriented invetments should do well."

In a research note, Schaeffer's Investment Research said hedge funds, not retail investors, were buying stocks. That's because the firm has noticed an uptick in purchases of index or exchanged-traded fund (ETF) put options "to hedge long positions that they are accumulating," according to Todd Salamone, senior vice president of research at the firm. A put option is a bet an underlying asset price will fall.

Buying by hedge funds can be bullish for stocks, Schaeffer said.

"The significance of who is buying is that when hedged hands are accumulating stocks, rallies tend to occur, and any sell-offs tend to be modest given they have put protection in place," Salamone wrote.

The dollar fell nearly a full percent against a basket of foreign currencies and remained near its 2010 low after the Group of 20 finance ministers agreed over the weekendto refrain from competitive currency devaluations. Analysts viewed the decision as a reason to bet the dollar would continue to fall.

Meanwhile, gold rose about 1 percent near $1,336 an ounceand palladium hit its highest in nearly a decade. And oil jumped near $82 a barrel, gaining for a second session.

The falling dollar boosted materials. The consumer discretionary and industrials also were among the leading S&P 500 sectors.

Materials and commodity stocks on the rise included BHP Billiton , RioTinto and Freeport-McMoRan , all up more than 2 percent each.

Financials were the weakest performing sector Monday, but not all bank stocks were lower, which Ablin at Harris Bank takes as a good sign.

"We’re starting to see investors begin to differentiate bwteen the winners and the losers and the finance sector, they aren’t all trading collectively as they once were," Ablin said.

Bank of America slipped after the bank acknowledged some mistakes in foreclosure filesas it begins to resubmit documents in 102,000 cases, according to the Wall Street Journal.

Rivals JPMorgan and Wells Fargo were also lower.

Also, government owned mortgage financier Freddie Mac said that the foreclosure process in the U.S. is slowing.

Meanwhile, Federal Reserve President Ben Bernanke said U.S. banking regulators are reviewinghow large financial institutions conducted foreclosures and will publish a report on their findings in November, at a conference sponsored by the Fed and the Federal Deposit Insurance Corp.

Meanwhile, Citigroup shares climbed after Goldman Sachs added the bank to its "conviction buy" list, and said it is keeping its 12-month price target of $5.50 a share because of the bank's limited exposure to the mortgage-backed securities foreclosure crisis.

And HSBC rose about 1 percent after Goldman reiterated the bank as a "conviction buy."

On the earnings front, RadioShack plunged more than 7 percent after the electronics retailer posted a surprising drop in quarterly gross margin due to weakness in its electronics accessory business and more demand for lower margin mobile handsets.

Pharma giant Amgen and chipmaker Texas Instruments are expected to report after-the-bell.

And major earnings coming up this week include Ford , Procter & Gamble , Motorola , Microsoft , Chevron and Merck .

So far, of the third of all S&P 500 companies that have reported earnings, 83 percent have beat estimates, according to Thomson Reuters.

Office Depot shares jumped more than 7 percent after the office retailer announced CEO Steve Odland is stepping down. Odland, the company, and another executive settled charges with the Securities and Exchange Commission last week over improper disclosures. Rival Staples was also higher.

Lockheed Martin rose after the defense contractor said its board approved a share buyback plan of up to $3 billion.

Cable and satellite companies advanced after Barclays raised price targets on Comcast , DirecTV , CablevisionSystems and TimeWarnerCable .

Homebuilders including Toll Brothers and D.R. Horton rose following a report that showedexistinghome sales jumped more than expected in September, rising for a second month to an annual rate of 4.53 million units. In August, sales were revised slightly down to a 4.12 million unit pace. Analysts surveyed by Reuters had expected existing home sales to rise about 4 percent.

The Treasury market rallied Monday on expectations the Fed would buy assets soon to lift the economy. At 1 p.m., the U.S. Treasury reopened a five-year issue of inflation-protected securities Monday, auctioning $10 billion to yield a negative 0.55 percent. The securities, which were first sold in August, have a coupon of 0.5 percent.

In other economic news, a survey from the National Association for Business Economics showed that economists have become increasingly pessimistic on the outlook for the U.S. economy for the full year. Though a return to a shrinking economy is not expected, the survey found.

A handful of Fed officials are expected to speak including St. Louis Fed President James Bullard at 1:30 p.m. ET and New York Fed President William Dudley at 4:30 p.m. ET.

On the Calendar Next Week:

MONDAY: After-the-bell earnings from Amgen and Texas Instruments.
TUESDAY: S&P Case-Shiller Home Price Index, consumer confidence, two-year Treasury note auction; before-the-bell earnings from DuPont, Ford, Bristol-Myers Squibb, CIT Group, Johnson Controls, Kimberly-Clark, and Wyndham Worldwide; after-the-bell earnings from Broadcom, Dreamworks and Massey Energy.
WEDNESDAY: MBA mortgage applications, durable goods, new home sales, oil inventories, five-year Treasury note auction; before-the-bell earnings from Comcast, P&G, SAP, ConocoPhillips, Deutsche Bank, Dr. Pepper Snapple, General Dynamics, Owens Corning; after-the-bell earnings from Allstate, Owens Illinois.
THURSDAY: Jobless claims, natural gas inventories, 7-year Treasury note auction; before-the-bell earnings from Shell, AutoNation, Coca-Cola Enterprises, Duke Energy, Motorola, Potash, Starwood Hotels, and Thomson Reuters; after-the-bell earnings from Microsoft and MetLife.
FRIDAY: GDP, employment cost index, Chicago PMI, consumer sentiment, farm prices; before-the-bell earnings from Chevron, Merck, Cigna, Constellation Energy and Estee Lauder.

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