S&P 500 gains on Microsoft buyback as Treasuries rise, oil falls

U.S. equities rose a third day as Microsoft Corp.’s (NASDAQ:MSFT) plan to buy back $40 billion in stock fueled optimism that more companies will return cash to shareholders. European and Asian shares fell. Treasuries were little changed before a Federal Reserve statement tomorrow. Oil fell.

The Standard & Poor’s 500 Index (CME:SPU13) added 0.4% to 1,705.00 at 2:27 p.m. in New York, within five points of its Aug. 2 record. The Shanghai Composite Index slid 2.1%, the most in two months, as foreign direct investment in China trailed estimates. Ten-year Treasuries pared early gains that would mark a fifth straight advance, the longest rally in almost a year. The euro strengthened after German investor confidence increased. The S&P GSCI gauge of 24 commodities declined 1.2% as oil lost more than 1%.

Microsoft paced a rally that sent technology shares to the biggest gain among 10 industries in the S&P 500 after also announcing plans to boost its dividend by 22%. The Federal Open Market Committee meets today and tomorrow, when members are forecast to cut monthly bond buying by $10 billion to $75 billion, according to a Bloomberg survey of economists. The U.S. cost of living rose less than forecast in August, a sign it will take time for inflation to reach the Fed’s goal.

Large buybacks show “continued confidence by managers,” Jerry Braakman, the chief investment officer of First American Trust in Santa Ana, California, said in a phone interview. His firm oversees $1 billion. “With inflation being benign it doesn’t require a more aggressive tightening than the market would expect. This simulative environment will continue. If they have to dial it back, they’ll do it moderately to continue supporting the economy going forward.”

Market Movers

The S&P 500 climbed 0.6% yesterday, pushing the gauge of U.S. shares to a six-week high. Alcoa Inc., Intel Corp. and General Electric Co. rallied at least 1.2% to help lead gains in the Dow Jones Industrial Average, with technology, consumer-discretionary and energy shares leading an advance among eight of the 10 main industries in the S&P 500. Mosaic Co. slipped 1.4% today after North America’s second-largest fertilizer producer cut its quarterly forecast for potash and phosphate sales and prices.

Microsoft increased 0.5% after earlier rising as much as 2%. After struggling to keep up with rivals in the smartphone and tablet markets, Microsoft is retooling its strategy and seeking a new chief executive officer. Steve Ballmer, who has run the company since 2000, announced plans last month to retire when a replacement is found. The company also agreed to buy Nokia Oyj’s phone business for $7.2 billion, aiming to bolster its position in mobile devices.

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