U.S. Stocks Rise on Takeover Speculation, Oil; Dollar Tumbles

April 12 (Bloomberg) -- Health-care and energy companies helped the U.S. stock market resume its April rally, buoyed by takeover speculation and higher oil prices. The dollar dropped to a two-year low against the euro.
Pfizer Inc., Merck & Co. and Microsoft Corp. led the Dow Jones Industrial Average to its ninth gain in 10 days. MedImmune Inc. pushed an index of drugmakers and health insurers to their highest in six years after the maker of the FluMist spray vaccine hired advisers to explore a sale.
The industry's earnings are projected to rise the second most among 10 groups this year as the economic expansion slows. The Federal Reserve, in minutes released yesterday from policy makers' last meeting, noted ``increased uncertainty'' in the outlook for U.S. growth.
``Things like pharmaceuticals are a play on a slowing economy,'' said Robert Schaeffer, who helps manage about $2.5 billion at Becker Capital Management in Portland, Oregon. ``Traditionally, their earnings have been relatively stable. They have the wind at their back with the baby boomers moving out of middle age.''
The Dow average added 68.34, or 0.6 percent, to 12,552.96. The Standard & Poor's 500 Index rose 8.93, or 0.6 percent, to 1447.80. The Nasdaq Composite Index increased 21.01, or 0.9 percent, to 2480.32.
For the month, the Dow has gained 1.6 percent, the S&P 500 has advanced 1.9 percent and the Nasdaq has climbed 2.4 percent.
Crude Oil Rises
Crude oil rose 3 percent in New York, the biggest gain in two weeks, after the International Energy Agency said OPEC reduced supplies to a two-year low to cut world stockpiles.
March oil output by the Organization of Petroleum Exporting Countries, source of 41 percent of world supply, fell 165,000 barrels to 30.1 million barrels a day, the lowest since January 2005, according to the IEA, adviser to fuel consuming nations. U.S. oil demand my rise after Valero Energy Corp. returns its McKee, Texas, plant to half capacity this month.
``OPEC is in a very solid position and they know it,'' said Peyton Feltus, president of Randolph Risk Management in Dallas. As refinery production rises ``and as OPEC holds their line on cuts, you will see an accelerated drawdown on crude'' inventories.
Oil for May delivery advanced $1.84 to $63.85 a barrel on the New York Mercantile Exchange, the biggest rise since March 29. Futures have jumped 26 percent since the low closing price for the year on Jan. 18.
Euro and ECB
The dollar dropped to the lowest since Jan. 2005 after the European Central Bank suggested borrowing costs will be Higher over the next few months to tame inflation after keeping its benchmark interest rates at 3.75 percent today.
The European currency also reached a record high against the yen after remarks by ECB President Jean-Claude Trichet led traders to speculate that rate increases are likely in the months ahead. The Japanese currency gained against the dollar and pared its losses versus the euro on bets the yen's weakness will be discussed at tomorrow's Group of Seven meeting in Washington.
`Trichet said interest rates were accommodative, so that means he still has a job to do,'' said Dustin Reid, a senior currency strategist in Chicago at ABN Amro Bank NV.
The euro rose 0.31 percent to $1.3473 in New York after touching $1.3503, the highest since January 2005. The European currency traded at 160.43 yen, compared with 160.36 yesterday, after rising to 160.87, the strongest since the European currency's 1999 debut. The yen rose 0.27 percent to 119.07 versus the dollar.
Treasury Bond Auction
Treasuries erased earlier gains and were little changed after demand was weak in an auction of 10-year inflation- protected securities.
The sale drew the lowest percentage of bids from investors since at least 2003 when the government began releasing data, leaving Wall Street dealers with most of the securities. Ten-year inflation-protected securities last week were the most expensive relative to regular 10-year notes since August.
``People were expecting it to go decently because of its smaller size,'' said Jeremy Fletcher, part of a group that manages $7.5 billion worth of bonds, including $1.8 billion of TIPS, at American Century Investments in Mountain View, California. ``Apparently nobody came in and demanded a big portion'' of the notes.
The yield on the benchmark 10-year note was little changed at 4.73 percent, according to bond broker Cantor Fitzgerald LP. The price of the 4 5/8 percent securities due in February 2017 fell 1/32, or 31 cents per $1,000 face amount, to 99 1/8.