S& P 500 Logs Worst Month Since 1987

Stocks staged their steepest weekly surge in 34 years after the Federal Reserve's interest rate cut and signs that the credit crisis was ebbing helped boost equities, which are trading at the lowest valuations in two decades.

The Standard & Poor's 500-stock index still finished October with its worst monthly drop since 1987. Home Depot, Target and the Walt Disney Co. led gains by companies that depend on discretionary spending by consumers. Verizon Communications rose the most in six years after sales beat estimates. PNC Financial Services and BB&T advanced after the Treasury agreed to infuse capital in at least 23 regional banks.

The S&P 500 climbed 10.5 percent to 968.75 for the week, while the Dow Jones industrial average rose 11 percent, to 9325.01. Both rallied the most since October 1974 after closing at five-year lows on Oct. 27 as falling commodity prices signaled that the U.S. economic slowdown would cause a global recession. The Nasdaq composite index rose 10.9 percent, to 1720.95. The MSCI World Index of 23 developed markets jumped 9.8 percent.

"There's a lot of inexpensive merchandise out there," said Warren Koontz, chief investment officer for large, value stocks at Loomis Sayles in Boston. "The most I've seen in 25 years."

The S&P 500 sank 17 percent in October. This month's retreat drove its price-to-earnings ratio based on estimated 2008 profit to 10.7 on Oct. 27, the cheapest compared with the multiple using reported results since 1985.

S&P 500 companies are on pace for their fifth consecutive quarter of declining profits, led by financial companies. Global credit losses and asset write-downs at banks stemming from the collapse of the U.S. mortgage market exceed $684 billion. For the 360 that have reported third-quarter results, earnings fell 11 percent. Excluding banks, profit rose 16 percent.

The U.S. commercial paper market expanded for the first time in seven weeks after the Fed began buying the short-term corporate debt under a program created three weeks ago.

Yields on Treasury securities climbed as stock market gains curbed demand for fixed-rate investments. The benchmark 10-year note's yield rose to 3.95 from 3.69 percent.

The Treasury will auction $27 billion of three-month bills and $27 billion of six-month bills on Monday. They yielded 0.50 and 1.02 percent, respectively, in when-issued trading. One-month bills will be sold Tuesday.

-- Bloomberg News