Most U.S. stocks rose, recovering from an early drop, as American International Group Inc. led financial shares higher after announcing $4.3 billion in bank credit lines. Treasury two-year notes erased losses after a $35 billion auction, while oil retreated from a 26-month high.
The Standard & Poor’s 500 Index ended up 0.1 percent at 1,257.54 at 4 p.m. in New York after following European shares lower earlier on an interest-rate increase by China. AIG rallied 9.3 percent to lead gains on the slowest full trading day on the New York Stock Exchange in 12 years. The 10-year Treasury yield lost five basis points to 3.34 percent after gaining five basis points in early trading. Oil slipped as much as 1.1 percent.
The S&P 500 extended what so far would be its biggest December rally since 1991, with the index up 6.5 percent this month and 13 percent in 2010 amid signs the economic recovery is gaining momentum. The S&P 500’s group of banks, insurers and investment firms climbed 1 percent collectively to lead gains today as AIG moved closer to repaying taxpayers and gaining independence.
“The economy continues to grow and the market is reflecting that,” said Bruce McCain, who oversees $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “We’ve been getting positive news out of companies that accepted government funding. That’s a positive for investors’ perception.”
Snow Slows Trading
Some 468 million shares changed hands on the NYSE, the fewest for a full-day session since May 1998, as trading slowed following a snowstorm. NYSE Euronext, operator of the Big Board, said in an email alert this morning that trading systems were operating normally after the city received about 20 inches of snow. About four stocks rose for every three that fell on U.S. exchanges.
“There are no sellers in the market,” said Tim Hartzell, who oversees $300 million as chief investment officer for Houston-based Sequent Asset Management. “We should have sold off on the rate increase in China, but no one wants to take a stab at it. The market is up and everyone is making sure their cash is invested here at the end of the year.”
H&R Block Inc. fell 7 percent, the most since October, after saying an order by U.S. regulators bars a lending partner from offering tax-refund loans and that it’ll be hard to fully roll out alternative products in time for the 2011 season.
Retailers in the S&P 500 slipped 0.3 percent as a group. Stores expecting to ring up sales in the days after Christmas may have to intensify discounts after the snowstorm disrupted one of the busiest shopping days of the year.
Benchmark indexes retreated from Shanghai to Frankfurt earlier after the People’s Bank of China boosted its key one- year lending and deposit rates by 25 basis points on Dec. 25, with JPMorgan Chase & Co. and Morgan Stanley predicting further tightening in the first half of 2011.
“China will be one of the main themes for 2011,” said Peter Sorrentino, who helps oversee $13.8 billion at Huntington Asset Advisors in Cincinnati. “Demand drives prices. If that doesn’t manifest, it could be a lackluster year. In addition, there’s a feeling that expectations may have overshot. So, the market may have to do some adjustments and the risk is to the downside.”
China’s Shanghai Composite Index slid 1.9 percent, the most since November. The Stoxx Europe 600 Index declined 0.8 percent for its biggest loss since Nov. 29 as Germany’s DAX slid 1.2 percent. Reports today showed U.K. house prices fell for a sixth month and the number of mortgages for Spanish homes sank the most since April 2009. The market was closed in London for a holiday.
‘Realization Setting In’
About four shares fell for every one that rose on the Stoxx 600. Daimler AG, the world’s second-largest maker of luxury autos, tumbled 4.6 percent, while Volkswagen AG, Europe’s biggest carmaker, slid 4.8 percent. China is the world’s largest car market.
“There’s a realization setting in that perhaps China’s problems are a bit more serious, and this is the first of many increases and this is going to result in tighter liquidity,” said Peter Elston, a Singapore-based strategist at Aberdeen Asset Management Plc, which oversees about $277.3 billion. “Tighter liquidity is bad for stock prices.”
The MSCI Asia Pacific Index added 0.2 percent as Japanese shares advanced, while Chinese stocks reversed earlier gains. China’s policy makers may keep raising interest rates and banks’ reserve requirements, and sell bills to soak up cash and allow more gains by the yuan against the dollar, according to JPMorgan.
“These policy moves could be front-loaded in coming months, as headline inflation figures remain high and economic growth faces overheating risks early next year,” said Wang Qian, the brokerage’s Hong Kong-based chief China economist.
Three stocks fell for every two that rose in the MSCI Emerging Markets Index, which was little changed as gains in financial and technology stocks offset declines in commodity producers. Brazil’s Bovespa sank 1 percent and Russia’s Micex Index slipped 0.7 percent.
The dollar weakened against 11 of 16 major currencies, losing 0.3 percent to $1.3157 against the euro.
The yield on the two-year Treasury note lost less than one basis point to 0.65 percent. The notes erased losses that sent the yield up as much as seven basis points earlier after today’s auction drew the highest level of demand in three months.
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.71, the highest since a reading of 3.78 on Sept. 27. The 0.625 percent securities maturing in December 2012 produced a yield of 0.740 percent, compared with an average forecast of 0.761 percent in a Bloomberg News survey of seven primary dealers.
Oil slipped 0.6 percent to $91 a barrel in New York. Copper on the Comex in New York pared gains after climbing as much as 0.9 percent to $4.2985 a pound, the highest ever, amid declining stockpiles in China, the largest user of the metal.
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