By Michael Mackenzie in New York (Financial Times)
Wall Street was sharply higher at mid-morning on Thursday and blue chips were in record territory, boosted by a big deal in the mining sector and better-than-expected sales at Wal-Mart in June.
In deal news, Rio Tinto announced an agreed $38.1bn cash bid for Alcan, the Canadian aluminium producer. The deal values Alcan at $101 a share, and trumps a hostile $28.7bn bid from Alcoa that Alcan had rejected.
Alcan surged 9.4 per cent to $97.99, and has now doubled in value so far this year. Meanwhile, Alcoa was 6.9 per cent higher at $45.37 and earlier set a 52-week high of $46.15.
"It is unlikely that Alcoa will be able to top Rio Tinto's offer given RT's stronger finances," said Leo Larkin, aluminium industry analyst at Standard & Poor's Equity Research.
Same-store sales figures for June were released by retailers on Thursday. With 47 retailers having reported, sales were up 2.4 per cent, above a forecast rise of 1.8 per cent year-over-year according to Thomson Financial. The June number is less than a 2.9 per cent rise in May. In June 2006, sales rose 3 per cent.
Among the better performing retailers, Wal-Mart posted sales growth of 2.4 per cent versus an expected 0.8 per cent. Wal-Mart was up 2.2 per cent at $48.74.
American Eagle Outfitters said June same-store sales rose 5.7 per cent and its stock was up 6.5 per cent at $27.73 at midmorning.
In contrast, Macy's reported weaker-than-expected sales and also lowered its fiscal second-quarter earnings outlook. The stock was down 3.5 per cent at $39.01.
Less than an hour after the opening bell, the S&P 500 index was up 0.7 per cent at 1,529.38. Among the major industry groups, materials led gains, boosted by Alcoa, followed by financials, as credit markets stabilised, and energy stocks. Crude oil prices were trading above $73 a barrel at mid-morning on Thursday. Health care and telecoms were the main lagging S&P sectors.
Meanwhile, equity volatility, as measured by the Chicago Board Options Exchange's Vix index, continued to fall after a 16 per cent surge earlier this week.
Analysts at Deutsche Bank said: "The recent spike in implied equity volatility is likely a temporary risk aversion phenomena, as the commencement of the US reporting season is likely to shift investor focus back towards solid corporate fundamentals and away from financial risks."
At mid-morning, the Nasdaq Composite was 0.7 per cent higher at 2,670.04.
Alcoa and Wal Mart were a boost for bluechips and the Dow Jones Industrial Average was 0.8 per cent firmer at 13,687.85 and had set a new record high of 13,697.77 in early trade.
Among stocks in the news was General Electric. The conglomerate and Abbott Laboratories said late on Wednesday they were unable to agree on "final terms and conditions" of GE's proposed $8.13bn deal to buy Abbott's primary in-vitro and point-of-care diagnostics units. Shares in Abbott were down 0.4 per cent at $52.98.
Citigroup said: "GE's ability to walk from the diagnostics deal is a setback for Abbott." The bank said Abbott faces the prospect of low earnings quality and "even with the recent sell off and today's expected decline, we still believe the stock is overvalued."
Shares in GE, which reports second-quarter results on Friday, were up 0.4 per cent at $38.35.
Another deal in the news involved Sallie Mae. Some members in the group behind the planned $25bn buy-out of the student lender said on Wednesday that they might back out of the deal due to proposed legislation regulating student loans. Sallie Mae was up 3.1 per cent at $53.75, after the stock closed 9.8 per cent lower at $52.15 on Wednesday.
In earnings news, Motorola issued an warning for 2007 results and said it no longer expected its mobile phone business to be profitable this year. Its stock was down 1.4 per cent at $17.70.
Meanwhile, Genentech, the biotechnology company, said late on Wednesday that second-quarter earnings rose 41 per cent . It also raised its full-year outlook. The shares were down 1.8 per cent at $74.60 as analysts said the company has met expectations among investors.
Also after the closing bell on Wednesday, Yum Brands, the operator of fast-food brands, said its second-quarter earnings rose 15 per cent. The stock was down 0.8 per cent at $34.15, as analysts noted flat domestic sales. Yum rose 4.9 per cent to $34.41 in regular trade on Wednesday, after UBS upgraded it from "neutral" to "buy".
In economic news, weekly jobless claims fell 12,000 to 308,000 for the week ended July 7. It was the lowest claims level in nearly two months and the four-week average declined 1,500 to 317,750.
Meanwhile, the US deficit in international trade of goods and services expanded 2.3 per cent in May to $60.04bn, up from a revised gap of $58.67bn for April. Economists had forecast a $60.00bn trade gap in May.
After a cautious start, stocks rose on Wednesday as safe haven buying in Treasury bonds lost steam and reversed.
At the close, the S&P 500 index was up 0.6 per cent at 1,518.76. Among major sectors, materials, telecoms and industrials led gains. The Nasdaq Composite rose 0.5 per cent to 2,651.79 and the Dow Jones Industrial Average rallied 0.6 per cent to close at 13,577.87.
Equity volatility, as measured by the Chicago Board Options Exchange's Vix index, fell 4.8 per cent on Wednesday after a surge of 15.9 per cent on Tuesday.
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