Stocks Rise on ECB Speculation as Spain, Italy Notes Gain

Stocks rose and the euro climbed as German Chancellor Angela Merkel’s government backed the European Central Bank’s bond-buying plan. Spanish and Italian notes increased, while commodities reversed declines.

The Standard & Poor’s 500 Index rose 0.2 percent to 1,394.29 at 4 p.m. in New York, and the Stoxx Europe 600 Index added 0.5 percent. The German 10-year bund yield slid three basis points, while the Spanish two-year rate lost 46 basis points. The euro climbed 0.1 percent to $1.2396, erasing earlier losses. Knight Capital Group Inc., the firm driven to the brink of bankruptcy by trading losses last week, tumbled 24 percent. Crude oil increased 0.9 percent to a two-week high.

Merkel’s government backed the ECB’s bond-buying plan announced last week, her deputy spokesman Georg Streiter said today. Spanish and Italian two-year notes climbed for a fourth day amid speculation the ECB will buy the securities in an attempt to calm euro-region turmoil. Italian Prime Minister Mario Monti said the euro area is showing signs of “psychological dissolution,” according to an interview in Der Spiegel magazine.

“There’s better general feeling,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “We’ve had a good earnings season and better-than-estimated data last week. The weekend didn’t bring any painful news out of Europe and there are expectations the ECB will buy bonds.”

The S&P 500 advanced after closing last week at a three- month high as a report showed payrolls climbed more than forecast in July. Raw-material and technology shares gained the most today among 10 groups in the S&P 500. Hewlett-Packard Co. (HPQ), Bank of America Corp. (BAC) and Caterpillar Inc. (CAT) jumped at least 1.5 percent to pace advances among the largest U.S. companies. Best Buy Co. (BBY) gained 13 percent as founder Richard Schulze offered to take the electronics retailer private.

Earnings Season

About 73 percent of the S&P 500 companies which reported second-quarter results have beaten analysts’ earnings estimates even as 59 percent missed sales projections, data compiled by Bloomberg show.

Knight Capital (KCG) tumbled after the market maker agreed to a $400 million cash infusion through the sale of convertible preferred stock. Getco LLC, Blackstone Group LP, Stifel Nicolaus & Co., TD Ameritrade Holding Corp., Stephens Inc. and Jefferies Group Inc. are investing, according to a statement from the company.

Computer Breakdown

Knight, whose market-making unit executes about 10 percent of U.S. shares, has been fighting for survival since a computer breakdown spewed orders through stock exchanges Aug. 1 and led to a $440 million loss.

About three shares rose for every one that fell in the Stoxx 600. (SXXP) European stocks rose for a ninth week in the five days ended Aug. 3, extending the longest winning streak since January 2006. The Stoxx 600 climbed 13 percent over the period as policy makers eased repayment terms for Spanish banks and optimism grew central banks will announce stimulus measures.

Cie. Financiere Richemont SA (CFR) rose 5.2 percent today, the most in more than two months, after the second-biggest luxury goods company said it expects fiscal first-half profit to rise 20 percent to 40 percent as currency shifts boost revenue. PostNL NV tumbled 5.2 percent after the Dutch postal company forecast full-year earnings at the lower end of a previously announced range.

‘Short End’

The yield spread between Spain’s 10-year bonds and two-year notes widened to as much as 343 basis points, the most since Bloomberg began collecting the data in 1993. ECB President Mario Draghi said on Aug. 2 any bond purchases undertaken by the bank in unison with the European Financial Stability Facility would focus “on the short end of the yield curve.”

The two-year German note yield was at minus 0.060 percent, below zero for the 22nd consecutive day. The similar-maturity Italian rate declined nine basis points, with the Portuguese yield sliding 120 basis points.

The cost of insuring against default on sovereign debt fell, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments decreasing two basis points to 247.

“It’s fair to say that many sources of volatility and risk remain over the next couple of months but if we can get to a stage where the ECB aggressively buys bonds then it will give Europe more time to try to find a growth miracle,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a report.

Treasury Auctions

Treasuries were little changed before the U.S. auctions $32 billion in three-year debt tomorrow, the first of three sales of notes and bonds this week totaling $72 billion. The benchmark 10-year yield declined one basis point to 1.56 percent.

The dollar fell against most of its major counterparts as risk appetite increased. The U.S. currency lost 0.3 percent to 78.22 yen. The euro pared its decline against the yen, slipping 0.2 percent, after rising 0.5 percent last week. Sterling declined against 14 of its 16 most-traded peers after U.K. data showed weakness in the housing market.

The S&P GSCI gauge of 24 commodities rose 0.4 percent, erasing a decline of as much as 0.7 percent. Cotton, nickel and aluminum advanced while soybeans tumbled 2.7 percent. Oil rallied 0.9 percent to $92.20 a barrel, reversing an earlier loss of 0.8 percent. Natural gas jumped 1.1 percent amid speculation a supply glut will continue to shrink in coming weeks because of hot weather and demand from power generators.

Gold Gains

Gold futures gained for a second session, adding 0.4 percent, on speculation the Federal Reserve will take additional measures to support economic growth, spurring demand for the metal as an inflation hedge. Fed Chairman Ben S. Bernanke said today in Cambridge, Massachusetts, that gauges of the U.S. economy’s strength may fail to measure the suffering of individual citizens.

The MSCI Emerging Markets Index (MXEF) rose 1.5 percent to its highest level since May 11. South Korea’s Kospi (KOSPI) index surged 2 percent and the Shanghai Composite (SHCOMP) rose 1 percent, taking its two-day rally to 2.1 percent, the best since May. China plans to let workers choose for as much as 30 percent of their wages to be paid in the shares of their publicly-traded employers. Benchmark gauges in Russia, India, Poland and the Czech Republic gained more than 1.1 percent.

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: Lynn Thomasson at lthomasson@bloomberg.net

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