Stocks, Euro Jump on Improving Data, Speculation of Larger Europe Bailout
Stocks jumped, sending U.S. benchmark indexes to their biggest gains in three months, while the euro and commodities rallied and Treasuries slid amid improving data on the American and Chinese economies and speculation of a larger effort to end Europe’s debt crisis.
The Standard & Poor’s 500 Index gained 2.2 percent, the most since Sept. 1. The MSCI Emerging Markets Index rose 2.2 percent, its biggest gain since Aug. 2. The euro rebounded above $1.31 while Spanish 10-year bonds snapped an 11-day drop. The rate on 10-year Treasury notes increased 17 basis points to 2.97 percent, a four-month high. Oil and copper advanced more than 3 percent. After the U.S. close, S&P 500 futures added 0.1 percent at 7 p.m. in New York and Japan’s stocks rose in early trading.
U.S. equities started what is historically their best month with a rally after ADP Employer Services data showed companies added 93,000 jobs last month, the Federal Reserve said the economy strengthened across most of the nation and manufacturing in China expanded at the fastest pace in seven months. European Central Bank President Jean-Claude Trichet said yesterday that investors are underestimating policy makers’ determination to halt the region’s debt crisis and shore up the euro ahead of a meeting of the bank’s Governing Council tomorrow.
“We’re working our way back,” said David Joy, chief market strategist at Columbia Management in Boston, which oversees $347 billion. “The ADP number shows that we’re clearly going in the right direction,” he said. “The strength out of China shows that, even if there’s some tightening, they will be successful in engineering a soft landing.”
The S&P 500 erased three days of declines as Exxon Mobil Corp., Freeport-McMoRan Copper & Gold Inc. and General Electric Co. paced gains that sent commodity producers and industrial companies to the top performances among 10 groups, all of which rose at least 1 percent.
The Dow Jones Industrial Average surged 249.76 points, or 2.3 percent, to 11,255.78. The Dow has rallied in December more than in any other month over the last century, according to Bespoke Investment Group. The 30-stock gauge rose 1.3 percent on average in the month during the past 100 years and gained 1.5 percent and 1.7 percent over the last 50 and 20 years, respectively, the Bespoke data show.
Today’s gains came after a report on private payrolls bolstered optimism before the government’s November employment data, which is forecast to show on Dec. 3 that 145,000 jobs were added last month. The jobs growth reported by ADP topped the median forecast of 70,000 in a Bloomberg survey of economists. The Institute for Supply Management’s gauge of manufacturing in the U.S. fell less than estimated to 56.6 for November.
Stocks and the euro extended gains after Reuters reported that an unidentified official said the U.S. may support enlarging a European financial rescue program by adding cash from the International Monetary Fund. The U.S. is not discussing extra IMF money for Europe, a U.S. official in Washington told Bloomberg News.
The Fed’s Beige Book survey showed the economy gained strength in 10 of 12 regions as manufacturing expanded and retailers anticipated a stronger holiday shopping season. Five Fed banks, including Boston and San Francisco, said the economy grew “at a slight to modest” rate, while five others, including New York and Chicago, reported a “somewhat stronger pace of economic activity.” Conditions were reported as “mixed” in the Philadelphia and St. Louis regions.
The Stoxx Europe 600 Index rallied 2 percent, the most in three months. Spain’s IBEX 35 led gains in national benchmark gauges, surging 4.4 percent for its biggest advance since May. Banco Santander SA, the nation’s largest lender, and Banco Bilbao Vizcaya Argentaria SA jumped more than 7 percent.
The MSCI Asia Pacific Index rose 0.9 percent. China’s Purchasing Managers’ Index climbed to 55.2 last month, beating the 54.8 median estimate of 14 economists surveyed by Bloomberg News. South Korean exports rose 24.6 percent from a year earlier after gaining a revised 27.6 percent in October.
The euro appreciated against 15 of 16 major counterparts, climbing 1.8 percent to 110.6 yen, snapping a three-day decline. The Swiss franc slipped against 14 of its 16 most-traded counterparts, weakening 1.1 percent versus the euro. The Dollar Index, which tracks the U.S. currency against six trading partners, declined for the first time in four days, falling 0.6 percent to 80.699.
There’s “a calm of sorts returned to financial markets,” Peter Frank, a currency strategist at Societe Generale SA in London, wrote in a report today. “Both equity and commodity prices were resilient to the ongoing European Union sovereign crisis thanks to another bout of solid manufacturing results for China.”
The extra yield investors demand to hold Spanish 10-year bonds instead of benchmark German bunds tumbled 34 basis points to 249 basis points. Irish 10-year yields declined 32 basis points to 9.13 percent.
Portuguese bonds rose, sending the 10-year yield 21 basis points lower to 6.86 percent, as the government sold 500 million euros ($655 million) of 12-month bills today. The auction attracted bids for 2.5 times the amount offered, compared with a bid-to-cover ratio of 1.8 in November.
S&P said late yesterday it may cut Portugal’s credit rating on concern the nation may have to seek a bailout. Yields on debt from Italy and Spain climbed to euro-era records relative to bunds this week, while the spread on higher-rated Belgian bonds over bunds increased yesterday to the most since at least 1993.
The ECB bought Irish government bonds today, according to three traders with knowledge of the transactions. The central bank also purchased Portuguese debt, said two people, who asked not to be identified because the deals are confidential. An ECB spokesman in Frankfurt declined to comment. The ECB’s Governing Council will meet tomorrow amid speculation it will again delay its exit from emergency liquidity measures.
The cost of insuring against a default on corporate debt decreased, with the Markit iTraxx Crossover Index of credit- default swaps on 50 mostly junk-rated European companies declining 31 basis points to a mid-price of 494.25, according to Markit Group Ltd. The index surged to a two-month high yesterday.
Credit default swaps insuring the government debt of Belgium, Ireland, Spain and Portugal all decreased from records.
The S&P GSCI Index of 24 commodities gained 3 percent, the most since May 27. Oil jumped 3.1 percent to $86.75 a barrel and copper climbed 3.2 percent to $3.9475 a pound in New York.
Fed Buys Bonds
The 30-year Treasury yield jumped 13 basis points to 4.24 percent. The drop in U.S. bonds came even as the Fed bought $8.2 billion of Treasuries with maturities from June 2016 and November 2017 as part of an asset-purchase program aimed at lowering borrowing costs and stimulating economic growth. The central bank is buying Treasuries every day this week.
Economists at Goldman Sachs Group Inc., the most profitable Wall Street firm, increased their forecasts for U.S. and global growth in 2011, predicted an acceleration in 2012 and recommended investors buy banks. The U.S. economy will grow at a 2.7 percent rate next year, up from a previous forecast of 2 percent, and 3.6 percent in 2012, economists led by Jan Hatzius in New York said in a report today.
The global economy will grow 4.6 percent in 2011 and 4.8 percent in 2012, Dominic Wilson, senior global economist, said in a separate report.
Goldman recommended U.S. bank stocks, junk bonds, commodities, Japanese stocks and China’s currency. They are the first of the firm’s “top trades” for 2011, they said. The forecasts are a departure from the pessimism that characterized Goldman Sachs’ projections since 2006.
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