U.S. stocks rise with energy tracking oil amid stimulus optimism

WASHINGTON (BLOOMBERG) - U.S. stocks advanced, with energy shares following a rally in oil, amid speculation central banks around the world will act to support the global economy even as the Federal Reserve tightens policy.

The Standard & Poor's 500 Index gained 1.5 per cent to 1,896.03 at 9:33 a.m. in New York, rising for a second day and turning positive for the week. Energy shares rallied as oil surged Friday in its biggest two-day advance since August.

"I think we're a heck of a lot closer to the bottom, and I think it's a better time to put your foot in the water, but don't back up the truck yet," said Andrew Brenner, head of international fixed income for National Alliance Capital Markets in New York. "It looks like central banks are on the warpath against weakness. That's going to put a real risk-on component to today."

The benchmark rebounded on Thursday from a 21-month low as European Central Bank President Mario Draghi signaled the potential for more stimulus as early as March. Sentiment also received a boost from speculation that the Bank of Japan is considering additional easing.

The S&P 500 was down 0.6 per cent through Thursday in the holiday shortened week, and on Wednesday dipped below a level technical analysts call oversold, meaning a selloff has gone too far. A rout stoked by concerns about China's slowdown and plunging oil wiped off as much as US$2.45 trillion from U.S. equities this year.

"It's a classic oversold bounce after Draghi's comments yesterday and the noise on Japanese stimulus overnight," said Veronika Pechlaner, who helps oversee $10 billion at Ashburton Investments, part of FirstRand Group. "It's become harder and harder for stimulus to really support the economic fundamentals. But at least we have a bit more stable trading environment for a couple of days."

Investors are keeping watch on corporate earnings for a gauge on the health of the U.S. economy. Analysts estimate earnings of S&P 500 firms slumped 7 per cent in the fourth quarter. Of the 72 companies that have reported results so far, 79 per cent beat profit projections and 51 per cent exceeded sales forecasts.

Among the few pieces of data before the Fed's two-day policy meeting next week, a report today is forecast to show sales of previously owned homes increased in December, according to economists surveyed by Bloomberg, while a separate report is expected to show a gauge of leading economic indicators slipped last month.

While chances for a January Fed rate increase have stayed low, odds for a March boost have fallen since the start of the year, with traders pricing in a 24 per cent chance of a raise, compared with even odds at the start of the year.