By Eric Martin
Oct. 17 (Bloomberg) -- U.S. stocks swung between gains and losses as Warren Buffett's advice to buy shares and Google Inc.'s earnings offset reports showing the housing slump and consumer confidence worsened.
Google jumped 9 percent after saying customers continued to buy Web ads even amid a slowing economy. D.R. Horton Inc. and Meritage Homes Corp. led a gauge of builders down on a Commerce Department report that construction of single-family homes plunged to the lowest level in a quarter century. The Dow Jones Industrial Average recovered from a decline of 261 points spurred, then fell again, as the expiration of options spurred volatility amid the wildest month for market swings since 1929.
``I've been buying American stocks,'' Buffett, the world's second-richest person, wrote in a New York Times column. ``A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread.''
The S&P 500 added 0.03 point to 946.46 at 3:23 p.m. in New York. The Dow retreated 87.78, or 1 percent, to 8,891.48. The Nasdaq Composite Index slipped 0.1 to 1,717.7. About the same number of stocks advanced as fell on the New York Stock Exchange.
The S&P 500 has climbed 5.3 percent this week, rebounding from its worst weekly loss in 75 years. The index is still down 33 percent in 2008 as losses and writedowns from mortgage- related investments at banks worldwide swelled to $660 billion. The Dow has added more than 5 percent this week.
Investors were whipsawed this week as governments injected $2 trillion to bail out banks amid growing signs the credit crisis will spur a contraction in the global economy. The S&P 500 posted its biggest gain since the 1930s on Oct. 13, rallying 12 percent, before plunging the most since the crash of 1987 on Oct. 15 as retail sales had their steepest drop in three years and Citigroup Inc. .
Europe's Dow Jones Stoxx 600 Index added 3.8 percent today, while the MSCI Asia Pacific Index rose 0.4 percent.
The S&P 500 is valued at 11.8 times estimated profit for its companies. When that price-to-earnings ratio sank to 10.9 on Oct. 10, the index was the cheapest compared with the multiple using trailing profit since June 1985.
The stock market's fluctuating may get even bigger as almost 80 million options expire today. The most widely owned S&P 500 options expiring this week are October 1,150 puts. The S&P 500's 18 percent retreat from that strike price through yesterday rewarded buyers of those contracts, which increased almost sixfold in value this month. Even after yesterday's 4.3 percent surge, the index had slumped 22 percent in three weeks through yesterday.
The Chicago Board Options Exchange Volatility Index, a measure of expected share-price swings and option prices, surged to an intraday record 81.17 yesterday.
``We are seeing extreme volatility, and the market is not finding its moment,'' said Alberto Espelosin, who helps manage the equivalent of $7.7 billion at Zaragoza, Spain-based Ibercaja Gestion. ``I would expect with all the measures the government in the U.S. has taken to help indexes, in the long-term we will return to more normal levels of volatility. But that will not happen in the very short-term.''
Google rallied $31.68 to $384.70. The company reported third-quarter profit, excluding some items, of $4.92 a share. That beat the $4.75 average analyst estimate in a Bloomberg survey.
Advanced Micro Devices Inc. climbed 28 cents to $4.40. The second-largest maker of personal-computer processors posted a narrower loss in the third quarter. Sales, excluding a $191 million technology license payment, rose 1.7 percent to $1.59 billion.
Gilead Sciences Inc. rose $3.92 to $45.31. Third-quarter profit for the largest U.S. maker of AIDS medications topped analysts' estimates by 3 cents on rising demand for its combination AIDS drugs.
The S&P 500 Financials Index rallied 2.1 percent as the cost of borrowing dollars in London fell, capping the first weekly decline since July, after central banks around the world pumped unprecedented amounts of cash into money markets and governments backed loans. The London interbank offered rate, or Libor, for three-month loans in dollars dropped for a fifth day, sliding 8 basis points to 4.42 percent, the British Bankers' Association said.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 4.08 percentage points from 4.64 percentage points at the end of last week.
JPMorgan Chase & Co. recommended 16 companies, including McDonald's Corp. and Merck & Co., that may outperform the U.S. stock market during the ``global recession'' it expects to unfold during the next two years. McDonald's added 99 cents, or 1.8 percent, to $55.45. Merck gained $1.77, or 6.3 percent, to $28.96.
Intuitive Surgical Inc. dropped the most in the S&P 500, losing 11 percent to $190.59. The maker of a robotic system to perform surgery had its full-year earnings estimate cut by 4.9 percent to $5.03 a share as the hospital spending environment is likely to continue deteriorating, Oppenheimer & Co. Inc. analyst Amit Hazan wrote in a note today.
Meritage slumped 2.2 percent to $15.17 and D.R. Horton slid 6.8 percent to $6.88. Construction began on 817,000 houses last month, down 6.3 percent from August's 872,000 level that was lower than previously estimated, the Commerce Department said. Building permits, a sign of future construction, dropped 8.3 percent to 786,000 pace, the lowest level since November 1981.
Caterpillar Inc., the largest maker of bulldozers, lost $1.20, or 2.8 percent, to $41.17, the steepest drop in the Dow average.
American International Group Inc. tumbled 19 cents, or 7.8 percent, to $2.24 as the Federal Reserve said it needed to tap two-thirds of its $122.8 billion credit line. The company, once the world's biggest insurer, has borrowed $82.9 billion in the month since it agreed to a U.S. takeover, the Fed said yesterday, up from $70.3 billion a week ago.
Stocks surged yesterday as oil's retreat below $70 a barrel sparked a rally in consumer companies. The index halted a two- day slump that threatened to erase almost all of the 12 percent gain in the S&P 500 on Oct. 13, when the market climbed on speculation the government's plan to shore up banks will ease the credit crisis.
The S&P 500 has fallen in 10 of the past 12 trading days as the earnings outlook for companies in the index deteriorated. Profits fell 33 percent on average for the 68 companies that reported third-quarter results since Oct. 7, according to Bloomberg data.
Wall Street analysts forecast a 7.5 percent drop in earnings in the third quarter in a Bloomberg survey last week. Analysts have maintained forecasts for record profits even as the seizure in credit markets caused banks to stop lending to each other, sent U.S. stocks to the worst week in 75 years and prompted unprecedented efforts to cushion global economies.
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