Stocks Gain, Treasuries Fall, on Retail, Home Sales Data

Stocks advanced, giving the Dow Jones Industrial Average its biggest two-day rally since July, and oil increased to a two-year high as U.S. home sales and retail purchases topped estimates and Goldman Sachs Group Inc. advised buying banks.

The Dow climbed 1 percent and is up 3.2 percent this month. The Stoxx Europe 600 Index added 1.7 percent and the euro gained 0.5 percent to $1.3209 as the European Central Bank extended an emergency loan program. Oil surged to $88 a barrel while 10-year Treasury yields climbed. Spain’s IBEX 35 rallied 2.8 percent and the 10-year Spanish bond yield fell after demand rose at a note sale. After the U.S. close, Standard & Poor’s 500 Index futures slid 0.1 percent at 7 p.m. in New York and Japanese stocks rose.

Equities advanced for a second day as a record 10 percent increase in pending home resales and higher-than-estimated sales at chain stores from Abercrombie & Fitch Co. to Limited Brands Inc. added to evidence the U.S. economic recovery is gaining momentum. Goldman Sachs raised its rating on U.S. financial stocks to “overweight” and predicted a 20 percent rally in the S&P 500 by the end of next year as the economy improves.

“The market is being helped by news on home sales and the latest consumer spending,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $63 billion. “The hope is that if the economy improves the financial-services stocks will do better.”

Limited, Abercrombie

Banks led gains in the S&P 500 after Goldman Sachs highlighted JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. among its “top stock ideas across financials,” triggering rallies of more than 2.7 percent in each.

All 12 stocks in an S&P gauge of homebuilders advanced at least 2.2 percent after the National Association of Realtors said its index of pending home resales jumped a record 10 percent in October.

Abercrombie & Fitch surged 11 percent, the most since March, after same-store sales topped estimates at the clothing chain. November comparable store sales rose 5.3 percent at U.S. retailers, compared with a 3.5 percent estimate, Retail Metrics Inc. President Ken Perkins said in an interview.

Ten stocks rose for each that fell in the Stoxx Europe 600. The ECB delayed its withdrawal of emergency liquidity measures and bought more government bonds as President Jean-Claude Trichet pledged to fight “acute” financial market tensions. The ECB will offer banks unlimited loans through the first quarter, he told reporters in Frankfurt.

ECB Debt Purchases

Irish and Portuguese bonds surged as ECB officials embarked on a new round of debt purchases, according to traders with knowledge of the transactions. The 10-year Portugal yield decreased by 55 basis points, or 0.55 percentage point, and Ireland’s 10-year rate slid 38 basis points.

The ECB met under pressure to stop the debt turmoil from engulfing Spain, the euro area’s fourth-largest economy, after the Irish rescue four days ago failed to persuade markets that policy makers have the resolve needed to contain it.

Spanish banks advanced, with Banco Santander SA rallying 5.1 percent and Banco Bilbao Vizcaya Argentaria SA, the nation’s second-biggest lender, gaining 4.2 percent. Spain’s 10-year bond yield decreased 22 basis points to 5.13 percent.

Credit-default swaps on European debt fell for a second day amid optimism policy makers will maintain support for the region’s sovereign bond market. The Markit iTraxx Crossover Index of credit-default swaps on 50 European companies with mostly high-yield credit ratings fell 30.5 basis points to 473.

Asian Shares

The MSCI Asia Pacific Index rallied 1.7 percent, the most in a month. Canon Inc., a Japanese camera maker, rose 2.5 percent. The MSCI Emerging Markets Index climbed 1.7 percent and is up 3.8 percent over the past two days, its biggest rally since May. South Africa’s rand, Hungary’s forint and the Colombian peso led developing-nation currencies, strengthening more than 1.4 percent against the dollar.

Russia’s Wimm-Bill-Dann Dairy & Juice Co. soared 58 percent after PepsiCo Inc. said it will acquire 66 percent of the dairy company for $3.8 billion.

The Spanish three-year note yield slid 34 basis points. The extra yield investors demand to hold the nation’s 10-year bonds instead of benchmark German bunds dropped 23 basis points to 227 basis points. Yields on similar-maturity Greek securities fell 16 basis points to 11.65 percent.

Spain sold 2.5 billion euros ($3.3 billion) of notes due in October 2013. Demand was 2.27 times the amount sold, compared with a bid-to-cover of 2.16 at the October sale.

Copper rose 0.8 percent to $3.979 a pound in New York, while gold for immediate delivery slipped 0.1 percent to $1,386.52 an ounce. The Standard & Poor’s GSCI Index of commodities gained 1.4 percent and has surged 4.4 percent over the past two days, its biggest back-to-back advance since May.

Oil climbed 1.4 percent to $88 a barrel in New York, the highest settlement price since Oct. 8, 2008. Cotton, wheat and cocoa jumped more than 3.9 percent each, while gasoline and orange juiced gained at least 1.7 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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