U.S. Stocks Post Solid Gains On Rate-cut Hopes

NEW YORK (MarketWatch) -- U.S. stocks on Monday shed early losses to post solid gains after the government offered bleak figures on the battered housing market, further fueling hopes for another interest-rate cut by the Federal Reserve later this week.

"The main event for the week will be the Fed-rate decision on Wednesday. I can't remember a time when the pundits have had such a split opinion on the expected outcome," said Elliot Spar, option/market strategist at Stifel Nicolaus & Co.

Financial stocks were among those chalking up gains on thinking lowered borrowing costs would boost bottom lines, with American Express Co. up 2.7% and Citigroup Inc. gaining 2.1%.

The Dow Jones Industrial Average rose 61.3 points to 12,268.5, with 23 of its 30 components trading higher.

The blue-chip rise included Merck & Co. , up 2.4%, after its upgrade to buy from neutral by UBS.

McDonald's Corp. was the Dow's largest decliner, with stock of the fast-food giant down 6.7% after its fourth-quarter results showed profits up, but U.S. growth slowing in December. .

The S&P 500 Index gained 8.46 points to 1,339.07 and the Nasdaq Composite Index climbed 1.72 points to 2,327.92.

The Commerce Department reported U.S. builders slashed prices by more than 10% in December yet failed to boost sales, which dropped about 5% to near 13-year lows. .

On the New York Mercantile Exchange, oil futures erased earlier losses and turned positive, with the contract for March delivery up 28 cents at $90.99 a barrel. .

Gold futures for February delivery surged to a record $929.80 an ounce before closing up $16.40 at $927.10 an ounce. .

Shares of Nymex Holdings Inc. jumped 6.3% after the exchange and CME Group disclosed preliminary talks on a proposed CME acquisition of Nymex.

Shares of CME fell 1.7%. .

Volume neared 1.2 billion on the New York Stock Exchange, and advancing stocks outran declining issues about 3 to 1. On the Nasdaq, more than 1.6 billion shares exchanged hands, and advancers beat decliners, more than 2 to 1.

The U.S. dollar came under pressure, with the dollar index, which tracks the greenback's performance against six other major currencies, dropping 0.5% to 75.590.

Active issues

Shares in Alliance Data Systems Corp. plunged 36.1% after the company said its $6.4 billion takeover by Blackstone Group was on the verge of unraveling. .

Verizon Communications Inc. declined 0.6% after it reported fourth-quarter earnings. .

Quarterly results slated for release after the closing bell include American Express Co. , SanDisk Corp. and VMware Inc. .

Countrywide Financial Corp. said its chairman and chief executive, Angelo Mozilo, will give up $37.5 million in severance fees owed in connection with the lender's impending takeover by Bank of America Corp.

Among retail executives, Bruce Johnson will replace Aylwin Lewis as Sears Holdings Corp.'s president and chief executive effective Feb. 2, the troubled broadline retailer said Monday. .

Shares of General Motors gained 2% after a bankruptcy judge approved Delphi's reorganization plan. However, Deutsche Bank warned that lenders have not signed up for Delphi's $6.1 billion financing package that would help it to exit bankruptcy proceedings.

Overseas, shares in Europe lost ground again as the Societe Generale debacle weighed on the equities market. .

In Asia, stocks also tumbled, with Shanghai-listed stocks hit hardest. .

By Kate Gibson