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S&P 500 Advances to Highest Level Since 2007 After Jobs Report

Jan. 4 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index to the highest level since December 2007, after data showed employers added workers in December at about the same pace as the prior month.

Eli Lilly & Co. jumped 3.7 percent as it forecast 2013 earnings above analyst estimates. Citigroup Inc. rose 2.5 percent after Goldman Sachs Group Inc. added the bank to its conviction buy list. Avon Products Inc. gained 3.2 percent as Bank of America Corp. raised its rating on the stock. Apple Inc., the world’s most valuable company, slid 2.8 percent for the biggest drop in the S&P 500 as technology shares tumbled.

The S&P 500 added 0.5 percent to 1,466.47 at 4 p.m. in New York, surpassing a high set in September. The measure has surged 117 percent since hitting a 13-year low of 676.53 in 2009. The Dow Jones Industrial Average added 43.85 points, or 0.3 percent, to 13,435.21 today. More than 6.1 billion shares traded hands on U.S. exchanges today, in line with the three-month average.

“It’s not an incredibly strongly labor market but it’s mending and it’s going to continue to take time,” Greg Woodard, a strategist at Manning & Napier in Fairport, New York, which manages about $40 billion, said by telephone. “The market realized there’s some outside help. The Fed continues to provide a lot of liquidity. We got some resolution on a lot of uncertainty, although we pushed that uncertainty two months down the road.”

Payrolls rose by 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg called for a increase of 152,000. The unemployment rate held at 7.8 percent, matching the lowest since December 2008.

‘Unemployment Problem’

“At 7.8, that tells us we still have an unemployment problem and the Fed will still be engaged,” Mohamed El-Erian, Pimco’s chief executive officer and co-chief investment officer, said today in an interview on Bloomberg Television.

A separate release from the Institute for Supply Management showed its index of U.S. non-manufacturing businesses rose to 56.1 in December from 54.7 a month earlier. The median forecast of 66 economists surveyed by Bloomberg projected a decline to 54.1.

The S&P 500 rose 4.6 percent this week, its largest advance since December 2011. The gauge soared 2.5 percent on Jan. 2 after Republicans and Democrats agreed on a compromise budget that avoided the so-called fiscal cliff of sweeping tax increases and spending cuts.

Bond Buying

The equity benchmark surged 13 percent in 2012, its biggest annual rally in three years, as the Federal Reserve expanded asset purchases and the European Central Bank announced an unlimited bond-buying plan. Stocks slipped yesterday after Fed policy makers said they will probably end their $85 billion monthly bond-purchase program sometime in 2013.

“It was not too hot, not too cold and just right,” Douglas Cote, chief market strategist at New York-based ING U.S. Investment Management, said by phone on the jobs report. His firm oversees about $165 billion. “In light of the uncertainty in December with the fiscal cliff, concern over earnings and other negative market events, the report is a positive surprise and shows employers are still hiring.”

RBC Dominion Securities Inc. raised its stance on U.S. equities in a report today, recommending that investors hold more of the securities than are represented in benchmarks.

“Regardless of what one might think about Washington’s last-minute fiscal deal, it seems to have removed a layer of uncertainty and this is positive for share prices,” analysts led by Myles Zyblock wrote in the note.

Volatility Index

The Chicago Board Options Exchange Volatility Index, known as the VIX, fell 5 percent to 13.83 in New York today. It tumbled 39 percent this week, the most ever.

Investors bought shares of companies most tied to economic growth, sending the Morgan Stanley Cyclical Index and the Dow Jones Transportation Average to the highest levels since July 2011. The Morgan Stanley gauge of 30 U.S. stocks jumped 1 percent to 1,090.70. The transportation gauge, which includes companies like Union Pacific Corp. and FedEx Corp., climbed 1.2 percent to 5,534.06.

The Russell 2000 Index of smaller companies advanced 0.8 percent to a record 879.15. The S&P 500 Consumer Discretionary Sector Index also rose to an all-time high, adding 0.3 percent to 386.34.

Eli Lilly rose 3.7 percent to $51.56. The Indianapolis- based drugmaker said net income will be $4.03 to $4.18 a share this year. Excluding one-time items, the company expects profit of $3.75 to $3.90 a share, more than the $3.71 average of 18 analyst estimates compiled by Bloomberg.

Banks Rally

Financial shares had the largest advance among S&P 500 groups, climbing 1.3 percent. Citigroup gained 2.5 percent to $42.43. New Chief Executive Officer Michael Corbat may lead Citigroup to better returns and increased efficiency, according to Goldman Sachs.

Avon climbed for the fourth straight trading day, rising 3.2 percent to $16.09. Bank of America raised its rating on the cosmetics seller to a buy from neutral.

CME Group Inc. jumped 4.3 percent to $53.77. The world’s largest futures exchange reported yesterday that volume in December averaged 9.6 million contracts a day, or 1 percent higher than the year-ago period.

Mosaic Co. rallied 3.3 percent to $58.62. The largest U.S. fertilizer producer reported fiscal second-quarter profit that beat analysts’ estimates after North American sales helped potash volumes to exceed its own forecast. Profit excluding a tax benefit and a foreign-exchange loss was $1.02 a share, exceeding the 88-cent average of 11 estimates.

Contact Lenses

Johnson & Johnson added 1.2 percent to $71.55 after people familiar with the situation said the company has shown interest in Warburg Pincus LLC’s contact-lens manufacturer Bausch & Lomb Inc. Warburg wants at least $10 billion for the business, the people said.

IPhone maker Apple slumped 2.8 percent to $527. Component production for Apple devices in the first quarter is “exposed to major adjustment risk” as sales to the end of 2012 were weaker than expected, Yasuo Nakane, a Tokyo-based analyst at Deutsche Bank AG, said.

Technology companies lost 0.6 percent for the only decline among 10 groups in the S&P 500. Minutes from the latest Federal Open Market Committee meeting released yesterday said business expenditures on equipment and software decreased in the third quarter.

Microsoft Corp., the world’s largest software maker, fell 1.9 percent for the biggest drop in the Dow to $26.74. Intel Corp., the biggest chipmaker, dropped 0.8 percent to $21.16.

Coinstar Inc. slid 3.8 percent to $50.10 after announcing that Chief Executive Officer Paul Davis will retire on March 31. The owner of the Redbox movie-rental kiosks said Chief Financial Officer J. Scott Di Valerio will take over as CEO.

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