Stocks (MXAP) rose, adding to the best weekly gain since 2009, as Italy’s leader proposed budget cuts and Germany and France pushed for a new treaty to fight the debt crisis. The euro erased gains as Standard & Poor’s put European nations on watch for potential downgrades.
The S&P 500 climbed 1 percent at 4 p.m. in New York, trimming a rally (SPX) of as much as 1.8 percent on news reports foreshadowing S&P’s action. The euro was down less than 0.1 percent at $1.3389 after increasing 0.7 percent earlier. Oil reversed a 1.5 percent rally to settle little changed at $100.99 a barrel. Italian, French and Spanish bonds surged; Europe’s debt markets closed before S&P’s plans were reported.
The S&P 500 (SPXL2) extended last week’s 7.4 percent gain as Italy’s Prime Minister Mario Monti prepared a 30 billion-euro ($40 billion) plan designed to reduce the euro-region’s second- biggest debt. France and Germany want a new EU treaty to set out rules for euro area governments, French President Nicolas Sarkozy said after meeting with German Chancellor Angela Merkel, who said the region’s leaders will seek to “win back a bit of trust” at a summit at the end of this week.
“France and Germany know how serious the problem is,” Frederic Dickson, who helps oversee $28 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “There’s a lot of anticipation that there will be positive comments coming out of Europe this week.”
Equities and the euro retreated from higher levels after the Financial Times said S&P was going to publish the ratings report. After U.S. equities markets closed, S&P announced it was putting 15 euro nations on review for possible downgrade, including Germany, France, Netherlands, Finland and Luxembourg.
The MSCI All-Country World Index posted a sixth consecutive day of gains, the longest winning streak since October, and the Stoxx Europe 600 Index rose for a second day. Italy’s FTSE MIB Index rallied 2.9 percent as Banca Monte dei Paschi di Siena SpA and Banco Popolare SC climbed more than 10 percent.
Banks led gains in the S&P 500 today, with JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. climbing at least 2.7 percent to pace an advance in 73 of 80 financial stocks in the S&P 500. The benchmark index for U.S. stocks closed at the highest level since Nov. 15 and trimmed its year-to-date loss to less than 0.1 percent.
MetLife Inc. (MET), the largest U.S. life insurer, climbed 3.7 percent after saying earnings will probably climb in 2012 as Chief Executive Officer Steven Kandarian reshapes management a year after the firm’s biggest acquisition.
Equities maintained gains earlier as the Institute for Supply Management’s non-manufacturing index fell to 52 in November from 52.9 a month earlier. Fifty is the dividing line between expansion and contraction and the measure was projected to rise to 53.9, according to the median forecast in a Bloomberg News survey.
The S&P 500 will climb to 1,360 next year as corporate profits increase and European and U.S. officials make policy changes, strategist Gina Martin Adams of Wells Fargo & Co. said. The level is about 13 times a blend of estimated 2012 and 2013 earnings, Adams said in a note dated today.
“Stocks will start the year troubled by ongoing sovereign debt struggles in Europe,” New York-based Adams wrote in the report. “European and U.S. policy makers will likely have to create just the right mix of ingredients to fill the punchbowl to the satisfaction of investors.”
Ten-year Treasuries erased earlier losses, with the yield unchanged at 2.035 percent after climbing eight points earlier. The Dollar Index, a gauge of the currency against six major peers, slipped less than 0.1 percent to 78.561 after losing as much as 0.6 percent. The U.S. currency weakened against 11 of 16 major peers.
The yield on the 10-year Italian bond slid 73 basis points to 5.95 percent.
French 10-year bonds rallied and outperformed benchmark German bunds, narrowing the difference in yield, or spread, between the securities by 20 basis points to 93 points. The Spanish 10-year yield tumbled 56 basis points to 5.12 percent, dropping for the sixth consecutive day, the longest run of declines since August.
Germany sold 2.675 billion euros of six-month bills to yield 0.0005 percent, while the Netherlands sold 1.1 billion euros of 176-day bills and 1 billion euros of 84-day securities.
All Eyes on IMF
Merkel’s government won’t stand in the way of the Bundesbank helping to fight the debt crisis by channeling loans through the International Monetary Fund, a senior Merkel ally said. Germany is keen for the IMF to adopt a “decisive role” in combating the crisis alongside the European rescue fund, Michael Meister, the parliamentary finance spokesman for Merkel’s Christian Democratic Union, said today in a telephone interview.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments declined seven basis points to 320, the lowest since Nov. 3. Contracts on Italy dropped 27 to 431 and Spain fell 31 to 351.
A benchmark gauge of U.S. credit risk pared its decline on concern that Germany and France may lose their top ratings at S&P. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased by 1.9 basis points to a mid-price of 123.7 basis points at 3:35 p.m. in New York, according to Markit Group Ltd. The index had earlier fallen as low as 119.9.
Merkel and Sarkozy said Europe’s two biggest economies were aligned on backing automatic penalties for countries that violate deficit limits and locking limits on debt into euro states’ constitutions. The French leader said they aimed reach consensus on the changes required by March as the two presented a common platform for a Dec. 8-9 summit of EU leaders in Brussels.
“If they fail to deliver this Friday, those bond markets are going to erupt and those sovereign-debt yields in Italy and Spain and elsewhere in Europe are going to go to new highs,” Howard Ward, portfolio manager at Gamco Investors Inc. in Rye, New York, said in a Bloomberg Television interview.
The MSCI Emerging Markets Index rose 0.6 percent, a sixth straight gain in its longest winning streak since Oct. 28. The Shanghai Composite Index lost 1.2 percent after a Chinese purchasing managers’ index, a gauge of industries such as construction, retail and property, shrank for the first time since February. The Micex Index added 0.8 percent in Moscow as Prime Minister Vladimir Putin’s hold on parliament weakened. Benchmark indexes advanced more than 1.7 percent in Poland and Hungary.
The S&P GSCI index of 24 commodities slipped 0.1 percent percent, erasing an earlier gain of as much as 1.2 percent. Nickel, coffee and sugar climbed more than 2.6 percent for the biggest gains among the 24 commodities in the index, seven of which rose. Natural gas, wheat and live cattle lead losses with declines of more than 2 percent.
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