U.S. Stocks Have Biggest Weekly Gain in Four Years; Banks Rise

U.S. stocks surged this week, giving the Standard & Poor's 500 Index its biggest weekly gain since the war in Iraq began in March 2003, after the Federal Reserve indicated it's no longer biased toward higher interest rates.

Morgan Stanley, Goldman Sachs Groups Inc. and Citigroup Inc. led financial shares in the S&P 500 to the biggest gain since October 2004 on prospects the Fed will lower borrowing costs, spurring loan demand and bolstering profits. The week's advance helped the market recover more than four-fifths of its losses from the biggest rout in four years.

``The economy is likely to slow, but it's unlikely to go into recession, and the Fed is likely to ease at some point in 2007,'' said Jason Trennert, chief investment strategist at Strategas Research Partners LLC in New York. ``It's great for stocks. It's precisely what you want.''

Announced U.S. acquisitions totaled $41.9 billion this week, including deals for Affiliated Computer Services Inc., Triad Hospitals Inc. and ServiceMaster Co. Energy shares jumped the most since April 2006 as oil climbed above $62 a barrel.

The S&P 500 gained 3.5 percent to 1436.11. The Dow Jones Industrial Average added 3.1 percent to 12,481.01, while the Nasdaq Composite Index rose 3.2 percent to 2448.93.

`On Our Side'

U.S. stocks erased $902 billion in market value from Feb. 27 to March 5, according to Bloomberg data. With this week's gain, shares have reclaimed more than 80 percent of that loss.

The Fed kept the benchmark U.S. interest rate at 5.25 percent and unexpectedly abandoned its tilt toward higher borrowing costs. The Federal Open Market Committee's statement dropped a reference to ``additional firming,'' giving central bankers more flexibility on the direction of interest rates.

Futures contracts give 78 percent odds that the Fed will cut rates to 4.75 percent by the end of the year.

``We've been waiting for the Fed to be on our side,'' said Michael Mullaney, who manages $10 billion at Fiduciary Trust Co. in Boston. ``The Fed's next move is probably going to be a cut, and probably sometime no later than August.''

Financial shares in the S&P 500 gained 3.9 percent this week. Lower interest rates boost the value of bonds owned by banks, brokers and insurers, and increase demand for mortgages and loans.