U.S. Stocks, Euro Gain on Report of Europe Debt Deal, Earnings

U.S. stocks surged, led by financial shares, after the Guardian reported that Germany and France will boost the size of the European rescue fund and Bank of America Corp. (BAC) posted better-than-estimated results. Treasuries fell, while commodities and the euro advanced.

The Standard & Poor’s 500 Index rose 2 percent to 1,225.38 at 4 p.m. New York time, its highest closing level since Aug. 3. The euro strengthened 0.3 percent to $1.3775. Ten-year Treasury notes fell, sending yields up two basis points to 2.18 percent. The S&P GSCI Index of commodities climbed 0.7 percent, recovering from an earlier 1.3 percent slide. Apple Inc. dropped 6.2 percent to $397.84 at 5:04 p.m. after missing earnings estimates for the first time since at least 2004.

Stocks and the euro extended gains as the Guardian reported that France and Germany agreed to boost the European rescue fund to 2 trillion euros. The two countries haven’t agree on how to bolster the bailout fund, a person with direct knowledge of the talks told Bloomberg News. Bank of America surged 10 percent to lead gains in the Dow Jones Industrial Average after posting third-quarter profit of $6.23 billion as credit quality improved and results were boosted by one-time items, including a $4.5 billion gain related to debt valuations.

“It’s time to get less bearish,” David Kelly, chief market strategist for JPMorgan Funds in New York, which manges $408 billion, said in a telephone interview. “There’s a realization that at some stage this thing is going to turn. We know that they will come up with a deal in Europe, but the issue is if that deal will make the economy any good.”

Crisis Summit

This weekend’s debt-crisis summit should endorse the expansion of the rescue fund, the U.K.-based Guardian reported, citing unnamed European Union diplomats. Steffen Seibert, German Chancellor Angela Merkel’s chief spokesman, declined in an interview with Bloomberg News to comment on the Guardian story, saying he won’t discuss intermediate results of negotiations. He said France and Germany were in “intensive talks” on bolstering the European Financial Stability Facility.

Stocks and the euro pared gains in the final five minutes of U.S. equity trading as Dow Jones Newswires quoted a source as saying the report that the fund will reach 2 trillion euros was “totally wrong.”

Financial shares in the S&P 500 surged 5 percent for the best advance among 10 industries. JPMorgan Chase & Co. and Citigroup Inc. surged at least 5.9 percent. State Street Corp., the custody bank, rallied 11 percent after profit increased a stronger-than-forecast 11 percent. Goldman Sachs Group Inc. climbed 5.5 percent even after reporting its second quarterly loss in 12 years.

‘Watching Paint Dry’

Pulte Group Inc. rallied 11 percent to pace gains in 11 of 12 stocks in an S&P index of homebuilders, which surged 9.6 percent for its best gain since March 2009. The National Association of Home Builders/Wells Fargo sentiment index climbed to 18 from 14 in the prior month. Economists surveyed by Bloomberg News projected the measure would rise to 15, according to the median forecast. Readings below 50 mean more respondents said conditions were poor.

“The funny thing about sitting around watching paint dry is that it does actually eventually dry, and something similar may finally be occurring to the moribund U.S. new home market which has been a notable absentee from the 2 1/2-year-old U.S. recovery,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said in a note to clients.

‘Squeeze Short Sellers’

The S&P 500 may advance to 1,254 this week before falling, according to Tom DeMark, the creator of indicators meant to identify turning points in the price of securities. DeMark, whose prediction last month that the S&P 500’s decline would stop at 1,076 proved prescient when the index bottomed at 1,074.77, said the rally that lifted the benchmark as much as 14 percent since then will fizzle.

The S&P 500 will rise as high as 1,254 before falling at least 5.6 percent, he wrote in an e-mail today.

“This rally should squeeze short sellers and exhaust late buying,” said DeMark, the founder of Market Studies LLC. “The rally should be fast.”

Technology shares led the U.S. market lower earlier as International Business Machines Corp. slid after posting sales that missed analysts’ estimates for the first time in five quarters. Revenue showed slowing growth in IBM’s software, hardware and services businesses. IBM, which accounts for about 12 percent of the Dow average, tumbled 4.1 percent and shaved about 58 points off of the 30-stock gauge’s advance today.

China, France Concern

Global stocks also slipped earlier after China’s economy expanded 9.1 percent in the third quarter from the previous year, trailing the 9.3 percent forecast in a Bloomberg survey of economists, and Moody’s Investors Service said France’s credit rating is at risk because Europe’s debt crisis has left it with “less room for maneuver” than it had during the financial crisis of 2008.

Crude oil, silver and nickel rose at least 0.9 percent to lead gains among the 24 commodities tracked by the S&P GSCI, while natural gas, lead and cocoa fell the most. Hogs rose for a fifth straight day, the longest rally since March, amid signs of increasing demand for pork. Oil advanced 2.3 percent to $88.34 a barrel, the highest level in more than a month.

The Stoxx Europe 600 Index slipped 0.4 percent, paring a drop of as much as 1.5 percent. European markets closed before the Guardian report. BHP Billiton Ltd. and Rio Tinto Group helped lead mining shares lower. BNP Paribas SA and Societe Generale sank more than 3 percent after Moody’s comments on France’s rating. Danone rose 2.2 percent as it was said to be in talks to sell water assets to Japan’s Suntory Holdings Ltd.

French Debt Spread

The yield on the French 10-year bond advanced eight basis points to 3.14 percent, while the German bund yield fell nine basis points to 2.01 percent, widening the spread between the two securities to 113 basis points. The spread reached 114 basis points, the most since 1992 based on closing Bloomberg generic prices. The CAC 40 Index of French stocks slipped 0.8 percent.

Credit-default swaps insuring French sovereign debt rose nine basis points to 191, compared with a record-high 202.5 reached on Sept. 22. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments erased earlier gains, falling 1.7 basis points to a mid-price of 332.

The yield on the 10-year Greek bond surged 28 basis points to 24.28 percent, the highest in more than a month. The similar- maturity Irish yield rose 47 basis points to 8.21 percent, increasing for the fourth consecutive day.

Portugal Yields

Portugal’s 10-year yield jumped 10 basis points, climbing for the eighth successive day, after the government forecast the economy will contract more than previously estimated next year as it implements more spending cuts to meet budget deficit targets.

The dollar weakened against 12 of 16 major peers, with the Australian and Canadian dollars rallying at least 1 percent. The Dollar Index, a gauge of the currency against six major peers, slipped 0.1 percent to 77.043.

The MSCI Emerging Markets Index fell 1.6 percent, following a nine-day, 13 percent surge that marked its best rally since July 2009. The Hang Seng China Enterprise Index of Chinese companies listed in Hong Kong tumbled 5.2 percent and the Shanghai Composite Index fell 2.3 percent, the most in almost a month. The Bombay Stock Exchange Sensitive Index, or Sensex, slid 1.6 percent.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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

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