Stocks Jump as Treasuries Fall on U.S. Housing Data, German Business Index

Stocks rallied, with the Standard & Poor’s 500 Index rebounding from its lowest level of the month, and Treasuries fell as U.S. housing starts topped economists’ estimates and German business confidence unexpectedly grew.

The S&P 500 surged 3 percent to close at 1,241.29 at 4 p.m. in New York and the Dow Jones Industrial Average jumped 337.17 points, or 2.9 percent, to 12,103.43, the biggest gains since Nov. 30 for both. Spain’s government bonds stayed higher as the nation sold 5.64 billion euros ($7.4 billion) of Treasury bills. The yield on the 10-year U.S. Treasury note advanced 11 basis points to 1.92 percent, with the dollar weakening versus all 16 of its most-traded peers. Oil gained 3.6 percent and the GSCI index of 24 commodities climbed for a second day.

U.S. builders broke ground in November on the most houses in over a year, a sign that the market is stabilizing heading into 2012. Federal Reserve Bank of Richmond President Jeffrey Lacker predicted the U.S. economy will grow at least 2 percent next year. German business confidence unexpectedly rose for a second month in December, according to the Ifo institute.

“It looks like our economy is doing pretty good despite the challenges of Europe,” said Michael Strauss, who helps oversee about $27 billion of assets as chief investment strategist at Commonfund in Wilton, Connecticut. “We’re seeing better economic news and the housing report fits right in line with that. The data provides confirmation that the surprise may be that housing is a pretty good contributor to economic activity. It’s another piece of news that’s helping the stock market.”

Housing Starts

The S&P 500 rebounded after yesterday’s 1.2 percent loss. The index, which has fluctuated between gains and losses for 2011 since the end of October, trimmed its year-to-day decline to 1.3 percent.

Standard Pacific Corp. and PulteGroup Inc. surged more than 9 percent to help lead a rally in homebuilders. Housing starts grew 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010, Commerce Department figures showed. Building permits, a proxy for future construction, also climbed to a more than one-year high.

Jefferies Group Inc. (JEF) rallied 22 percent, its biggest gain in three years, after the investment bank battling speculation about its financial strength reported earnings that topped analysts’ estimates on a recovery in fixed-income trading.

About 14 shares advanced for every one that declined in the Stoxx 600. UniCredit SpA, BNP Paribas SA and Intesa Sanpaolo SpA all climbed more than 5 percent to pace a rally in banks. Arkema SA climbed 9.1 percent amid speculation the company may be a takeover target. Bayer AG added 5 percent after the drugmaker said four of its drugs in development may become blockbusters.

The German Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 107.2 from 106.6 in November, the Munich-based institute said. Economists had expected a drop to 106, the median forecast of 36 economists in a Bloomberg survey showed.

Treasury Auction

The five-year Treasury note yield increased five basis points to 0.86 percent. The U.S. sold $35 billion of five-year notes at a record low yield of 0.880 percent, compared with a forecast of 0.885 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 2.86, versus an average 2.85 at the past 10 sales. The U.S. drew record low yields last week at sales of 30-year bonds and five-year inflation-linked notes.

The yield on Germany’s 10-year bund rose seven basis points to 1.96 percent, while similar-maturity Italian yields slid 22 basis points to 6.61 percent.

Spain’s 10-year bond yields were 11 basis points lower at 5.07 percent and two-year note yields were two basis points lower at 3.35 percent. The nation sold 5.64 billion euros of three-month and six-month bills, the Bank of Spain said, compared with a maximum target of 4.5 billion euros the Treasury had set for the sale.

Commodities

Oil for January delivery climbed 3.6 percent to $97.22 a barrel as the U.S. housing data bolstered optimism in the economy and speculation grew that further sanctions against Iran will curb supply. The GSCI index jumped 2.5 percent, as Brent crude, heating oil, cocoa, aluminum and gasoline climbed more than 2 percent.

The euro strengthened 0.6 percent to $1.3079. Australia’s dollar climbed 1.8 percent against the dollar after minutes of the central bank’s last meeting showed policy makers saw a continued expansion in the domestic economy even as Europe’s debt crisis weighs on global economic growth.

Sweden’s krona appreciated against the dollar and the euro even as the nation’s central bank lowered its main rate for the first time since 2009 to protect the economy from the debt crisis.

The MSCI Emerging Markets Index (MXEF) rose 1.4 percent, rebounding from its lowest level since Nov. 25. The Kospi Index climbed 0.9 percent in Seoul, rebounding from a 3.4 percent slide yesterday, and the won strengthened 1.7 percent against the dollar. South Korea’s National Pension Service, the nation’s biggest investor, said it bought stocks yesterday after the death of North Korean leader Kim Jong Il spurred some investors to sell on concern the leadership transition may lead to conflict on the peninsula. Moody’s Investors Service and S&P said Kim Jong Il’s death is unlikely to affect South Korea’s credit rating.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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