Builder: Housing may be bottoming out

Is there light at the end of the housing tunnel? Luxury-home builder Toll Bros. (TOL, news, msgs) suggested maybe -- and its shares promptly jumped 3%.

Wall Street basically ignored a poor earnings report from the company, focusing instead on CEO Robert Toll's comment that the housing slump might be "dancing on the bottom."

The Toll Bros. report helped the stock market extend yesterday’s gains and the gains the market has enjoyed since mid-July. The Dow Jones Industrial Average closed up nearly 48 points, nearly 0.4%, to 12,332. The Nasdaq Composite gained 4 points, 0.2%, to 2,452, and the Standard & Poor's 500 Index rose 5.6 points, 0.4%, to 1,415.

The Dow is now within 14 points below its all-time high of 12,345.14, set on Nov. 17. The S&P 500 is at its highest levels since early November 2000.

After a 15-month-long slowdown, Toll Bros. is "seeing a floor in some markets," its boss said. The Washington, D.C., suburbs of northern Virginia are showing clear signs of a bottom, he said. What made that interesting, Toll added, was that Northern Virgnia was the first market where the company had started to see the housing market start to slow. He said that area and other markets are starting to stabilize, although at much lower levels than in past years. He also said the suburban Maryland market looks like it's bottoming.

The company now expects to deliver 1,600 to 1,900 homes in its first quarter. That's better guidance than what the company offered in early November, when it projected delivering 1,500 to 1,800 homes.

Still, the latest earnings report was nothing to cheer about. Toll Bros. said net income fell 44% to $174 million, or $1.07 per share, from $310 million, or $1.84 per share a year ago. The company also warned that next year's profit may fall up to 62%.

Toll Bros. shares are down 10% so far this year, but the stock has had some dramatic ups and downs. It fell nearly 43% from mid-January to mid-July. Then, as investors began to think the housing market will improve some time in 2007, it jumped back up 44%.

Toll Bros. optimism pulled the entire home building sector higher. The Philadelphia Housing Sector Index ($HGX.X), up 2.1% today, has been the strongest index of the 42 Market Dispatches tracks.

Pulte Homes (PHM, news, msgs) was up 1.9% on the day. It had been down as much as 33% for the year in June before the rally in housing stocks cut the loss to 13%. Lennar (LEN, news, msgs) was up 2.6%. It's still down about 12% on the year. KB Home (KBH, news, msgs) was up 1.5%. Its loss on the year, once as much as 46%, is now about 28%.

Coca-Cola leads the Dow higher

It's been so long since Coca-Cola (KO, news, msgs) led anything, it's refreshing that the soft drink maker was the top Dow stock today. A Morgan Stanley analyst said improved sales volumes in Japan were positive for the stock, while a Merrill Lynch analyst boosted his price target for Coke.

Coke was up 2.5%, ahead of Walt Disney (DIS, news, msgs) and Merck (MRK, news, msgs), even Boeing (BA, news, msgs), which is about to win an order for 20 new 747 planes from the German airline Lufthansa.

For the year, Coca-Cola is up about 19%. That's an OK gain; Disney and Merck are both up about 43% on the year. But its management can truthfully say the stock is having a much better year than archrival PepsiCo (PEP, news, msgs), up just 8.2% so far this year.

Verizon was the Dow loser on the day, down about 1%. It’s been in a downtrend ever since the Democrats won control of the Senate and the House. Among S&P 500 stocks, chip equipment maker Novellus Systems (NVLS, news, msgs) was the leader with a 6.4% gain, followed by PMC-Sierra (PMCS, news, msgs), up 5.8%.

Labor costs ease; productivity better than thought

Stocks were also helped by a Labor Department report that U.S. labor cost increases were lower -- and productivity was better -- than first thought. Bond traders took the news as a sign inflation is less of a threat than thought. The 10-year Treasury note yield held roughly steady at 4.44%.

The department said labor costs, which help measure inflationary pressures, were revised to a 2.3% annual pace for the third quarter, down from an earlier estimate of 3.8%.

At the same time, the productivity of U.S. workers rose at an annual rate of 0.2% in the third quarter. While that’s the slowest rate of the year, it is up from an original reading of unchanged. Economists had expected a 0.5% rise. Productivity has risen at a 1.4% annual pace in the past year, the slowest pace in nine years.

Inflation has been a big concern of the Federal Reserve. Fed Chairman Ben Bernanke warned last week that wage pressures were rising and would cause higher prices for consumers. The Fed is expected to keep interest rates steady at 5.25% when its Federal Open Market Committee meets on Tuesday.

In another positive surprise, the Institute of Supply Management's index of nonmanufacturing businesses unexpectedly rose to 58.9 in November, up from 57.1 in October. Readings above 50 indicate expansion. The index had been expected to decline to 55.5.

October factory orders, however, declined 4.7%, the government reported this morning. Economists had expected a decline of 4.5%.

Outplacement firm Challenger Gray & Christmas also reported that November job cuts had risen by 11% to 76,773, with more than 20,000 jobs cut in the auto industry. Planned layoffs total 785,179 so far for 2006, down 19% from the 964,232 announced last year at this time.

Short hits from the markets -- 4 p.m.

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	4.850%	4.870%	0.00	-1.82%	21.71%
5-year Treasury note yield	4.387%	4.385%	0.002	-4.36%	0.69%
10-year Treasury note yield	4.442%	4.433%	0.009	-4.12%	1.07%
30-year Treasury bond yield	4.568%	4.548%	0.020	-4.17%	0.46%
Currencies
U.S. Dollar Index	82.40	82.42	-0.02	-3.18%	-9.41%
British pound in dollars	$1.97	$1.98	-0.01	3.53%	14.99%
Dollar in British pounds	£0.51	£0.50	0.00	-3.41%	-12.91%
Euro in dollars	$1.33	$1.33	0.00	4.52%	12.84%
Dollar in euros	€ 0.7498	€ 0.7491	0.00	-4.33%	-11.38%
Dollar in yen	114.81	115.30	-0.49	-1.83%	-2.60%
Commodities
Gold	$647.90	$645.20	$2.70	6.77%	24.86%
Copper	$3.2470	$3.1570	$0.09	-2.92%	50.22%
Silver	$14.0250	$14.0610	-$0.04	14.30%	57.76%
Crude oil (NYMEX) (per barrel)	$62.43	$63.42	-$0.99	6.30%	2.28%

Weight-loss drug also good for diabetics?

Shares of Sanofi-Aventis (SNY, news, msgs) rose nearly 2.6% today, to $45.03, after the French drug maker said a study showed that its weight-loss drug, Acomplia, might also be a good diabetes treatment.

The study gave the drug or a placebo to 278 patients with Type 2 diabetes each day for six months. None of the patients had taken diabetes medications before. The patients who took Acomplia showed an average 0.8 point reduction in blood sugar. The placebo group saw an average 0.3 point drop.

The patients in the treatment group also lost an average of 14.8 pounds, compared with an average of six pounds in the placebo group.

Acomplia is already on the market in several European countries but is awaiting approval in the United States.

Serious subscriber troubles for Sirius

Sirius Satellite Radio (SIRI, news, msgs) might need more than Howard Stern. The company lowered its year-end subscriber forecast, citing slower retail sales over Thanksgiving.

Sirius said it now expects between 5.9 million and 6.1 million subscribers by the end of the year. It had previously expected 6.3 million.

Morgan Joseph and Bear Stearns both cut their ratings on the company, and shares fell almost 7.7% to $3.85. Archrival XM Satellite Radio (XMSR, news, msgs) was down 2%.

Strong earnings for Kroger, AutoZone

The country's biggest supermarket chain said today that profit had risen 15.8%, and it raised its forecast for the year. Kroger (KR, news, msgs) said its third-quarter profit was $214.7 million, or 30 cents per share, up from $185.4 million, or 25 cents per share a year ago. Analysts had expected 28 cents per share.

The company said it benefited from lower prices and a better selection of products in its stores. Kroger operates 2,500 stores under the Kroger, Fred Meyer and Ralph's names.

Kroger shares jumped nearly 5% and were the fourth-best performer on the S&P 500.

Shares of U.S. auto-parts retail chain AutoZone (AZO, news, msgs) were up 4.2% today, sixth best among S&P 500 stocks after reporting strong earnings today.

The company said net income rose 8% to $123.9 million, or $1.73 per share, from $114.4 million, or $1.48 per share, a year ago. Analysts had expected earnings of $1.68 per share.

More free trading from Bank of America

Bank of America (BAC, news, msgs) is rolling out its free online stock trading to more states. The bank introduced the program in the Northeast in October and expanded it to seven states in the mid-Atlantic and Southeast regions last month. Now the service is available in 30 more states, mainly in the Midwest and Southwest.

The program allows customers with a combined minimum balance of $25,000 to make up to 30 equity trades a month without paying a fee.

Bank of America's free service shook rival online trader E*Trade Financial (ET, news, msgs), which charges approximately $10 per stock trade: Shares fell almost 1.7% to $23.08 on the day. Bank of America shares were up 0.3%.

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$62.43	$63.42	-$0.9900	6.30%	2.28%
Heating oil (per gallon)	$1.7983	$1.8089	-$0.0106	7.88%	4.07%
Natural gas (per million BTU)	$7.6850	$7.8060	-$0.1210	2.00%	-31.54%
Unleaded gasoline (per gallon)	$1.6364	$1.6631	-$0.0267	14.65%	-4.30%

Late payments on subprime loans surging

More Americans are falling behind on their mortgage payments at a rapid pace, The Wall Street Journal reports. The paper says the number of mortgage delinquencies is rising, putting pressure on lenders and causing concern for the mortgage market.

Subprime mortgages, loans made to borrowers who are considered higher credit risks because of past payment problems, have seen the highest levels of delinquency rates. The Journal reports that subprime mortgage originations jumped to $625 billion last year from $120 billion in 2001.

But although late payments are soaring to the highest level in 10 years, economists don't seem too concerned. Sources told the paper that the economy will not be hurt by the problem, unless late payments and foreclosures continue to rise at a faster-than-expected pace, which could trickle down to investors who buy mortgage-backed securities.

Icahn bid rejected

Property owner Reckson Associates Realty (RA, news, msgs) has rejected a $4.3 billion bid from billionaire financier Carl Icahn.

Reckson said the bid from Icahn's American Real Estate Partners (ACP, news, msgs) raised "significant financial and legal issues." Reckson also said it was moving forward with a special shareholder meeting tomorrow to vote on a bid from rival SL Green Realty (SLG, news, msgs).

Reckson said Icahn's bid, though higher than SL Green's $3.8 billion offer, had valuation issues related to the shares involved in yesterday's cash-and-stock bid.

Icahn had first made an all-cash bid with Mack-Cali Realty and New York real-estate investor Harry Macklowe, then revised the offer after his partners pulled out of the deal over the weekend.

Reckson Associates owns five skyscrapers in midtown Manhattan as well as office properties throughout the New York area.

Shares of all three companies were down slightly today.

By Elizabeth Strott and Charley Blaine