US stocks: Markets gain, AIG helps but Fed eyed

NEW YORK - US stocks closed higher Monday, getting a boost from American International Group Inc. on relief that the insurer's latest disclosures about accounting problems were less damaging than initially feared, while a surge in oil prices lifted shares of energy companies.

Trading was choppy during the session ahead of the Federal Reserve meeting on Tuesday when the Fed is expected to raise its benchmark fed funds rate to 3 per cent. Markets will also focus on the accompanying statement for clues about future increases.

Shares swung higher in late afternoon trading, helped by gains in oil companies such as Exxon Mobil Corp. and Conoco Phillips as crude climbed to US$51 a barrel.

While higher prices heighten concerns about the impact on corporate profits and consumer spending, they help oil company's profits.

The Dow Jones industrial average finished up 59.19 points, or 0.58 per cent, at 10,251.70. The Standard & Poor's 500 Index was up 5.31 points, or 0.46 per cent, at 1,162.16. The Nasdaq Composite Index ended up 7 points, or 0.36 per cent, at 1,928.65.

The Dow closed at its highest level in more than two weeks.

"AIG and energy stocks are higher and that helped the Dow, " said John Caldwell, chief investment strategist at McDonald Financial Group, part of Key Corp. "But it's hard to get excited about the market when the financials are down and the market is up -- if you think about financials as the leader for the market."

Shares of major brokers fell after a downgrade, while shares of Morgan Stanley slid after the board decided to stand by its embattled chief executive.

In economic news, US manufacturing activity receded in April amid a drop in new orders and a deterioration in hiring, according to a report from the Institute for Supply Management, an industry group. But US construction spending jumped to a record high in March as home building also hit record levels, a government report showed.

Caldwell said the slowdown seen in economic figures meant that "if anything there's more volatility" ahead of the Fed's meeting. "We don't know what they're going to say about this recent slowdown in the economic data. "

After dropping to a 10-week low last week, crude for June delivery settled up US$1.20, or 2.4 per cent, at US$50.92 a barrel. Exxon Mobil Corp. rose 71 cents to US$57.74, while Conoco Phillips rose US$1.85 to US$106.70.

Among other shares gaining was Home Depot Inc. , rising 89 cents to US$36.26 after a positive note from a Smith Barney analyst, which said the home improvement retailer was "less vulnerable to macro and interest rate volatility. "

American International Group Inc. shares edged up 5 per cent, or US$2.59 to US$53.44, a day after it said it will restate more than four years of financial reports. Prudential Equity Group said in a research note that the decision removed some uncertainty of the "status and strength" of AIG's balance sheet.

But Morgan Stanley fell 6 per cent, or US$3.23 to US$49.39 after the investment bank's board declined to oust its embattled chief executive as demanded by former high-ranking Morgan Stanley executives.

Shares of the big brokerages slipped after UBS lowered its outlook on the sector and downgraded Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. Inc. to "neutral" from "buy. "

Goldman Sachs was down 2 per cent, or US$2.33 to US$104.46, Lehman fell US$3.27 to US$88.45 and Merrill Lynch fell 85 cents to US$53.08. UBS cited mixed economic signals over inflation and economic growth as reasons for the downgrade.

Shares of long-distance telephone company MCI Inc. slid 83 cents to US$25.70 after MCI accepted a revised US$8.5 billion offer from Verizon Communications Inc. on Monday and rival suitor Qwest Communications International Inc. said it was ending its pursuit of MCI. Verizon fell 83 cents to US$34.97, while Qwest gained 5 cents to US$3.47.

Trading was active, with US$1.57 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 1.58 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year. Advancers outnumbered decliners on the New York Stock Exchange by about 2-to-1 and by about 8-to-7 on Nasdaq.

- REUTERS