NEW YORK (Reuters) - U.S. stocks rallied on Monday as JPMorgan Chase & Co (JPM.N) increased its offer to buy Bear Stearns Cos BSC.N five-fold and data showed signs of a possible bottoming in the troubled housing sector.
The Nasdaq was up 3 percent, while the Dow and S&P 500 each climbed almost 2 percent.
Investors warmed to the higher offer for Bear Stearns, to about $10 (5 pounds) a share, as it may avert a long shareholder battle and let JPMorgan close the deal sooner.
Sentiment also was sweetened by a report from the National Association of Realtors, which said the pace of existing home sales in the United States in February showed a surprising rise. The Dow Jones home builder index shot up 9.2 percent.
The Standard & Poor’s index of financial shares .GSPF climbed 2.5 percent. Shares of JPMorgan rose 3 percent to $47.36, while Bear’s shares more than doubled to a session high at $13.80 — well above the new offer price.
“It seems like we’re building a base and starting a rally,” said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois. “Maybe the market has bottomed here.”
The revised terms of the Bear Stearns deal showed there was “more life to Bear than the people expected last week,” he said.
Following strong gains last week, the Dow Jones industrial average .DJI rose 234.70 points, or 1.90 percent, to 12,596.02. The Standard & Poor's 500 Index .SPX gained 26.49 points, or 1.99 percent, to 1,356.00 and the Nasdaq Composite Index .IXIC rose 70.83 points, or 3.13 percent to 2,328.94.
The rally followed stocks’ strong advance last Thursday. The market was closed for Good Friday.
JPMorgan’s original agreement on March 16 to pay about $2 per share was considered a fire-sale price for the 85-year-old Wall Street investment bank, which collapsed in a liquidity crisis after suffering large losses on soured subprime mortgage debt.
Jankovskis said that the news on existing home sales was encouraging and followed better-than-expected news on housing starts last week. “We’re getting some confirmation that things are firming up in that sector.”
In another move aimed at easing the housing crisis, regional U.S. home loan banks will be allowed to boost holdings of mortgage-backed securities by up to about $150 billion, regulators said on Monday. That’s about double their existing holdings, bank sources said.
Financial weekly Barron’s said financial shares are poised to rise between 10 percent and 20 percent in the next year as panic over the global credit crisis recedes and earnings improve, according to its March 24 edition.
Shares of BlackRock Inc (BLK.N) surged 10.4 percent to $227.50 after the money management firm and hedge fund Highfields Capital Management said they have launched a new company that will buy and restructure distressed mortgage loans.
In earnings news, shares of upscale jeweller Tiffany & Co (TIF.N) advanced 13 percent to $43.63 after it posted an unexpectedly high quarterly profit and forecast robust growth in markets outside the United States and Japan.
Prices of U.S. Treasury debt extended Friday’s losses as demand for safe-haven government paper fell.
Editing by Jan Paschal