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U.S. Stocks Gain as Dollar Falls on Central Bank Optimism

U.S. stocks surged, sending benchmark indexes to the highest levels of the month, while the dollar slid amid reports central banks may take steps to help economies battered by Europe’s debt crisis. Treasuries retreated while commodities gained.

The Standard & Poor’s 500 Index added 1.1 percent at 4 p.m. in New York while the dollar weakened against all 16 major peers, with the euro increasing 0.6 percent to $1.2633. Ten-year Treasury yields climbed four basis points to 1.64 percent, while the rate on Spain’s 10-year bond rose to a euro-era record after Moody’s Investors Service cut its rating. The S&P GSCI commodities index rose 0.9 percent as natural gas surged 14 percent on a smaller-than-forecast gain in U.S. supplies.

Speculation grew that the Federal Reserve will discuss stimulus efforts as reports showed jobless claims unexpectedly climbed and the cost of living fell by the most in more than three years. Stocks extended gains amid reports central banks may boost liquidity as financial markets brace for potential turmoil following Greek elections this weekend. Greece’s benchmark stock index surged 10 percent on bets the party that backs terms of the nation’s bailout will win elections.

“Economic deceleration puts the Federal Reserve in the driver’s seat,” Chad Morganlander, a Florham Park, New Jersey- based money manager at Stifel Nicolaus & Co., which oversees about $115 billion of assets, said in a telephone interview. “There’s an improvement within the euro. There’s a modest amount of optimism that the Greek vote will bode well for the markets.”

Market Whipsawed

U.S. stocks briefly pared gains after Egan-Jones Ratings Co. reduced France’s government debt, a day after the firm preceded Moody’s in cutting Spain, fueling concern about contagion from the debt crisis.

The rally resumed amid reports of plans by central banks. Bloomberg News reported that U.K. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit. Reuters said that central banks of major economies are prepared to take action if needed to boost liquidity in financial markets if the Greek elections cause tumultuous trading, citing officials linked to the Group of 20 nations.

“A coordinated central bank action would be a net positive for market sentiment,” Michael James, a managing director of equity trading at Wedbush Securities Inc. in Los Angeles, said in an e-mail. “Hence the knee-jerk pop.”

Dow Leaders

Travelers Cos., Home Depot Inc. and Bank of America Corp. rallied more than 2 percent to lead gains in 28 of 30 stocks in the Dow Jones Industrial Average (INDU), which surged 155.53 points to 12,651.91 for its highest close since May 14. All 10 of the main industry groups in the S&P 500 (SPX) advanced, with telephone, energy and consumer-discretionary stocks rising more than 1.3 percent to lead gains.

Kroger Co. rallied 6.1 percent after the largest U.S. grocery-store chain boosted its annual profit forecast and announced a $1 billion share buyback. International Game Technology, a maker of casino machines, jumped 14 percent for the biggest gain in the S&P 500 after authorizing a share- repurchase plan of as much as $1 billion.

The S&P 500 fell yesterday following a decrease in U.S. retail sales and higher borrowing costs at auctions in Italy and Germany. The index tumbled as much as 9.9 percent from a four- year high in April through June 1 amid lower-than-forecast economic data and concern Europe’s debt crisis was spreading. The index has rebounded 4 percent since then after the retreat dragged its valuation to 12.9 times reported earnings, the cheapest since November.

Commodities Advance

Sixteen of 24 commodities tracked by the S&P GSCI index advanced. Oil for July delivery gained 1.6 percent to settle at $83.91 a barrel on the New York Mercantile Exchange, the biggest percentage increase since April 11. Futures extended their advance in after-hours electronic trading, climbing as much as 2.2 percent.

Natural gas futures jumped 14 percent, the most since September 2009, to $2.495 per million British thermal units. The Energy Department said stockpiles rose 67 billion cubic feet to 2.944 trillion. Analysts projected a gain of 75 billion, according to the average estimate in a Bloomberg survey. The five-year average increase for the week is 88 billion cubic feet.

Treasuries remained lower after the U.S. sold $13 billion of 30-year bonds at a record low yield. The bonds yielded 2.720 percent, compared with a forecast of 2.725 percent in a Bloomberg News survey of eight of the Fed’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.40, versus an average of 2.66 at the past 10 sales. Rates on existing 30-year bonds increased three basis points to 2.74 percent.

Italian Yields

Italian 10-year yields lost nine basis points to 6.13 percent, halting a six-day increase. Italy sold 4.5 billion euros ($5.6 billion) of debt, with the yield on its benchmark three-year bond rising to 5.3 percent from 3.91 percent at the last auction on May 14.

The Stoxx Europe 600 Index slipped 0.3 percent, recovering most of an early 1.2 percent slide. Credit Suisse slumped 10 percent to its lowest price since 1992. British Sky Broadcasting Group Plc and BT Group Plc tumbled more than 3 percent after winning the rights to show live English Premier League soccer matches by paying an extra 70 percent. Nokia Oyj plunged 18 percent after reducing its outlook for the second quarter.

Greek Rally

The rally in Greek stocks pared the Athens Stock Exchange Index’s decline this year to 19 percent. Greeks will vote for a second time in six weeks after a May 6 ballot failed to result in a government. New Democracy, the largest pro-bailout party, led Syriza, the group opposed to spending cuts, according to the last poll on June 1. Under Greek law, there is a ban on publication of opinion polls two weeks before an election.

German Chancellor Angela Merkel rejected quick solutions proposed to fix Europe’s financial crisis such as joint debt sharing, saying her nation can’t save the world economy alone and other G-20 countries must help. She said the debt crisis and Germany’s role in stemming contagion will be a “central topic” at next week’s G-20 summit.

“Europe is sliding further into a recession and the global and U.S. economies are still slowing down,” said Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “It’s still time for caution on the short-term view.”

Spanish Yields

Spain’s 10-year yield climbed as much as 24 basis points to 6.998 percent before paring gains and ending at 6.92 percent.

The nation’s two-year note yield surged seven basis points to 4.98 percent and the cost of insuring against a Spanish default using credit-default swaps climbed four basis points to 604, compared with an all-time high of 613.5 reached on June 1. A report showed borrowings by the nation’s banks from the European Central Bank rose to a record 287.8 billion euros in May from 263.5 billion euros in April.

The MSCI Emerging Markets Index slipped 0.6 percent after closing yesterday at its highest level since May 29. The Hang Seng China Enterprises Index and the Philippine Stock Exchange Index lost at least 1.5 percent. India’s Sensex Index fell 1.2 percent after inflation quickened more than economists estimated.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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