U.S. Stocks Close at Five-Year High While Treasuries Gain

U.S. stocks closed at a five-year high and Treasuries rose for the fifth time in six days as investors weighed prospects for a short-term lift in the U.S. debt ceiling. The yen traded at a 2 1/2-year low.

The Standard & Poor’s 500 Index increased 0.3 percent to 1,485.98 at 4 p.m. in New York and the Dow Jones Industrial Average added 54 points to 13,649.7, with both ending the week at the highest levels since 2007. Ten-year U.S. yields slid four basis points to 1.84 percent. Japan’s currency weakened to more than 90 per dollar for a second day for the first time since June 2010, and the Topix Index capped a 10th straight weekly advance, on signs the central bank will extend asset purchases. Hong Kong-traded shares of Chinese companies jumped to a 17- month high and commodities rose as China’s growth quickened.

House Republicans plan to vote next week on a three-month extension of U.S. borrowing authority in an effort to force the Democratic-led Senate to adopt a budget plan. Word of the vote helped the equity market recover from an early retreat triggered by a drop in consumer confidence to a 13-month low and disappointing earnings from Intel Corp. and Capital One Financial Corp.

“Anything that gets Congress to think about things and come up with a solution ahead of time provides some reassurance,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a phone interview. His firm oversees $20 billion. “It’s pretty early to be exuberant. Don’t forget that we still have substantial debt problems, the economy is still sluggish and companies are beating low-balled estimates. We need to be careful that we don’t get too far ahead of ourselves.”

Debt Ceiling Debate

Two-year Treasury yields declined one basis point to 0.25 percent, while rates on 30-year bonds decreased five points to 3.02 percent. The Treasury Department has said the U.S. will exceed its $16.4 trillion borrowing authority sometime from mid- February to early March.

Benchmark notes briefly pared gains on a report the House will pass a three-month debt-limit increase next week, only to extend them again after Speaker John Boehner said a budget that cuts spending must be passed before any long-term deal is reached. The Federal Reserve purchased $1.565 billion of bonds maturing from February 2036 to November 2042 amid its struggle to restore growth in the world’s largest economy.

In the stock market, the S&P 500 capped a third straight weekly gain and extended its 2013 advance to 4.2 percent. The benchmark gauge needs to rise about 5.3 percent to reclaim its 2007 record close of 1,565.15. General Electric Co. (GE) rallied 3.5 percent, the most since June, after fourth-quarter profit topped estimates amid across-the-board growth in industrial businesses.

Market Leaders

Morgan Stanley jumped 7.9 percent to $22.38, the highest price since July 2011, after earnings from the world’s biggest brokerage more than doubled and the firm reached profit-margin targets six months ahead of schedule. Of the 67 index members that have posted quarterly earnings so far in the earnings season, 72 percent exceeded analysts’ profit estimates, according to data compiled by Bloomberg.

Intel (INTC) tumbled 6.3 percent, the biggest drop in four years, after the world’s largest semiconductor maker prepared for a third straight quarter of declining sales, highlighting the company’s struggle to adapt in a world embracing mobile devices. Capital One sank 7.5 percent after quarterly profit missed analysts’ estimates.

U.S. markets will be closed on Jan. 21 in observance of the Martin Luther King Jr. holiday.

European Markets

European stocks were little changed, with the Stoxx Europe 600 Index slipping 0.1 percent today to erase a weekly gain. Rio Tinto Group added 1.8 percent after Goldman Sachs Group Inc. said the world’s second-biggest mining company may buy back shares. Ophir Energy Plc gained 2.5 percent as Nomura Holdings Inc. raised its recommendation on the stock. Telenet Group Holding NV slid 2.6 percent as Liberty Global Inc. said it won’t reopen its bid for the company.

The euro fell 0.4 percent to $1.3317 after a European Central Bank official said the ECB doesn’t have a view whether banks should repay funds when the possibility comes up, damping bets short-term interest rates will rise.

The shared currency slid from almost the highest since February 2012 after ECB Executive Board member Benoit Coeure said he doesn’t expect repayments to affect the Eonia rate, an overnight interest rate for the interbank market. The pound dropped against 15 of 16 major peers after U.K. retail sales unexpectedly fell.

China Growth

Zinc and lead rallied at least 0.7 percent after the GDP report from China, the world’s largest buyer of industrial metals. Oil was little changed at $95.56 a barrel to cap a sixth weekly advance, the longest streak in 14 months.

Natural gas futures climbed 2.1 percent to a six-week high of $3.566 per million British thermal units and spot prices led gains among 24 commodities in the S&P GSCI Index amid forecasts for colder weather in the eastern U.S. Wheat rallied more than 1 percent to cap a 4.8 percent five-day gain, the biggest for a week since July, as a lingering U.S. drought threatened this year’s harvest in the world’s largest exporter.

The yen was down 0.2 percent at 90.06 per dollar, while strengthening against 10 of 16 major peers.

The yen needs to return to a rate that helps the economy and “100 yen is a good level,” said Koichi Hamada, adviser to Japan’s prime minister in choosing a new central bank governor. The Bank of Japan may decide to conduct open-ended asset buying to stoke inflation at a meeting starting Jan. 21.

‘Material Change’

“The market has in its head that there is going to be a material change in BOJ policy,” said Jeremy Hale, head of macro strategy at Citigroup Inc. in London. “The BOJ is expected to announce further easing next week. In the short-term I think the yen can weaken further as the BOJ announces further stimulus. The market is expecting a sea-change in policy when the new governor comes in and that will be the big test.”

Japan’s currency has tumbled 13 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, on speculation the Bank of Japan will heed Shinzo Abe’s calls for greater stimulus to boost the economy, which may debase the currency.

The central bank will adopt the government’s desired 2 percent inflation target at its Jan. 21-22, according to 20 of 22 economists surveyed by Bloomberg News. All 22 expect the BOJ to add to its asset-purchase program, its main policy tool amid near-zero interest rates, with the median forecast for a 10 trillion yen increase.

Developing Nations

The MSCI Emerging Markets Index (MXEF) rose 0.7 percent. The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong added 2.1 percent to the highest level since August 2011. China’s gross domestic product expanded 7.9 percent in the fourth quarter from a year earlier, up from a three-year low of 7.4 percent in the previous period, National Bureau of Statistics data showed.

Russia’s Micex Index jumped 1.1 percent as Sberbank, the nation’s largest lender, jumped 2.2 percent to the highest close since July 2011. OAO Magnit, the country’s biggest food retailer by market value, rose 2.8 percent, also rose to a record. Energy shares led India’s Sensex to a two-year high as the government allowed oil companies to raise diesel prices, with 66 percent more shares traded than the 30-day average volume.

To contact the reporters on this story: Susanne Walker in New York at swalker33@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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