Stocks Gain on Bank Profits, U.S. Economy as Euro Climbs on Bond Auctions

U.S. stocks rose for a third day as Bank of America Corp. (BAC) posted a profit and jobless claims slid, while European equities and the euro climbed as French and Spanish borrowing costs decreased at auctions.

The Standard & Poor’s 500 Index added 0.5 percent to 1,314.5 at 4 p.m. in New York, its highest closing level since July 26, and the Nasdaq-100 Index reached an almost 11-year high. The Dow Jones Industrial Average increased 45.03 points, or 0.4 percent, to 12,623.98. The euro strengthened 0.8 percent to $1.2967, a two-week high. Treasuries fell, sending the 10- year note’s yield up eight basis points to 1.98 percent. Oil slipped, while nickel and lead rose more than 2 percent.

Bank of America climbed the most in the Dow, while Morgan Stanley and EBay (EBAY) Inc. also rallied after reporting better-than- estimated results. Initial U.S. jobless claims plunged to the lowest level in almost four years. France and Spain sold 14.6 billion euros ($18.8 billion) of bonds, with both nations’ funding costs falling in the first sale of medium and long-term debt since S&P downgraded their ratings.

“We’re in a fragile economy, we’re not going to have robust growth, but it’s going to take a lot of things to derail us,” Richard Weeks, the Vienna, Virginia-based managing director and partner at HighTower’s VWG Wealth Management, said in a telephone interview. His firm oversees about $20 billion. “You’ve seen big corporations navigate through very difficult times.”

The S&P 500 has gained 4.5 percent this year, the best start to a year since 1997, as U.S. economic reports and speculation that China will loosen monetary policy outweighed concern that downgrades for European nations would worsen the debt crisis.

VIX (VIX) Retreats

The Chicago Board Options Exchange Volatility Index, the benchmark gauge of U.S. options prices known as the VIX, fell below 20 for the first time since July amid lower demand for protection against losses in equities.

Credit Suisse Group AG’s Andrew Garthwaite lifted his 2012 forecast for the S&P 500 to 1,400, citing the European Central Bank’s refinancing plans for banks as a “potential game changer.” Garthwaite, the London-based global equity strategist at the firm, had previously estimated the S&P 500 would reach 1,340 at the end of 2012. His new forecast pushes the average projection of 12 strategists surveyed by Bloomberg to 1,349, implying a 7.3 percent gain for the year.

Bank of America rose 2.4 percent as the second-largest U.S. lender by assets swung to a quarterly profit of $1.99 billion and increased its Tier 1 capital ratio, a measure of a bank’s ability to absorb losses, to 9.86 percent from 8.65 percent in the third quarter. Morgan Stanley (MS) rallied 5.4 percent after reporting a narrower fourth-quarter loss than analysts estimated on gains in stock trading.

Earnings Season

EBay, the largest Internet marketplace, climbed 3.9 percent after reporting fourth-quarter sales and profit beat estimates, helped by a campaign to promote its retail offerings and broader use of the PayPal payment service. Eastman Kodak Co., the photography pioneer that introduced its $1 Brownie Camera more than a century ago, tumbled 46 percent in over-the-counter trading after it filed for bankruptcy protection from creditors and was delisted from the New York Stock Exchange.

Earnings have topped analysts’ estimates at 63 percent of the 35 companies in the S&P 500 that reported from Jan. 9 through the start of trading today, according to data compiled by Bloomberg. Analysts project that earnings for companies in the index increased 4.6 percent in the period, which would mark the slowest growth in more than two years.

‘Downward Pressure’

“There’s good news out there but at some point there are going to be more issues to deal with,” John Manley, who helps oversee $209.1 billion as chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. “Investors have very little confidence in long-term profit growth. There’s a sense that there’s still more downward pressure on the economy than upward.”

Initial jobless claims fell by 50,000 to 352,000 in the week ended Jan. 14, the lowest level since April 2008, Labor Department figures showed. The median forecast of 41 economists in a Bloomberg News survey projected 384,000. Other reports showed builders began work on fewer houses than forecast in December, while the cost of living in the U.S. was little changed last month for a second month.

U.S. equities briefly pared gains this morning after the Federal Reserve Bank of Philadelphia’s general economic index rose to 7.3 from 6.8 in December, trailing the median forecast for a reading of 10.3.

Crude oil slipped 0.2 percent to settle at $100.39 a barrel after the Energy Department said gasoline use dropped to 8 million barrels a day last week, the lowest level since September 2001. Stockpiles of the motor fuel climbed 3.72 million barrels to 227.5 million, a 10-month high.

Copper Rallies

Copper rose to a 17-week high in New York, gaining 1.3 percent to $3.8005 a pound, on speculation China may ease credit controls as growth slows, potentially bolstering demand prospects in the world’s largest user of the metal.

Almost seven shares gained for every two that fell in the Stoxx Europe 600 Index, which rose 1.2 percent to close at the highest level since August. Commerzbank AG, Germany’s second- largest lender, surged 15 percent after saying it’s more than halfway toward its goal of plugging a capital gap without using government aid. Alstom SA rallied 14 percent after the world’s third-largest power-equipment maker said orders will be “strong” in the fiscal fourth quarter.

European Bonds

Germany’s 10-year bund yield increased eight basis points to 1.86 percent, while the rate on Italy’s 10-year debt fell five basis points to 6.37 percent. The euro strengthened against 13 of 16 major peers, climbing more than 0.9 percent against the Australian, New Zealand and Japanese currencies.

Klaus Regling, head of the 440 billion-euro ($567 billion) euro-area bailout facility, is confident the fund’s reach can be increased as much as fourfold even after it was downgraded by S&P, his spokesman said. Options on leveraging the European Financial Stability Facility will be in place soon, Christof Roche said today by phone from Luxembourg.

With about 250 billion euros of the facility’s resources still to be committed, leveraging the fund by a factor of four would yield a buffer of as much as 1 trillion euros to help shield Spain and Italy from the debt crisis.

The MSCI Emerging Markets Index (MXEF) added 1.2 percent, set for its third consecutive gain and the highest close since October. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong rose 1.7 percent.

China will let larger lenders increase new loans by a maximum of about 5 percent from a year earlier, according to two people at state lenders who have knowledge of the matter. The banking regulator is delaying implementing the most stringent capital adequacy ratios and may lower risk weightings for loans to small businessmen and companies, four people said separately.

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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