U.S. stocks and Treasury bonds rose as a report showed the economy expanded in the third quarter at a faster rate than previously estimated. Chinese shares posted their longest slump since 1994 as money rates surged.
The Standard & Poor’s 500 Index (SPX) rose 0.5 percent to a record 1,818.32 as of 4 p.m. in New York to cap its best week in two months. The Stoxx Europe 600 Index added 0.5 percent, extending its gain this week to 3.7 percent, the most since April. Treasury 30-year bonds rose while five-year notes slid for a third day as traders unwound wrong-way bets on the Federal Reserve’s stimulus plans. The Shanghai Composite Index retreated for a ninth day. Gold rebounded from the lowest close in more than three years.
U.S. gross domestic product climbed at a 4.1 percent annualized rate, the strongest since the final three months of 2011 and up from a previous estimate of 3.6 percent, Commerce Department figures showed. China’s seven-day repurchase rate jumped to the highest since June’s record cash crunch even as the central bank said it had recently conducted short-term liquidity operations. The Bank of Japan agreed to continue buying the country’s sovereign debt at the same rate, following the conclusion of a meeting of policy makers.
“This revised GDP number was really positive,” Colleen Supran, a principal at San Francisco-based Bingham, Osborn & Scarborough, which manages about $3 billion, said in a phone interview. “It helps complete the story on what the Fed did this week and that is, the Fed has some belief that the economy is getting close to being able to stand on its own.”
The U.S. economy expanded in the third quarter at a faster rate than previously estimated as consumers stepped up spending on services such as health care and companies invested more in software.
The S&P 500 gained 2.4 percent this week, posting its biggest advance since October and erasing a loss for the month after the Fed’s decision to slow the pace of its stimulus boosted investor confidence that the recovery in the world’s largest economy is on course.
Three rounds of central-bank bond purchases have helped propel the equity benchmark 169 percent higher from a 12-year low in 2009. The Fed will probably reduce its bond purchases by $10 billion in each of its next seven meetings before ending the program in December 2014, according to the median forecast in a Bloomberg survey of 41 economists conducted on Dec. 19.
“What you’ve got to recognize is that the justification for tapering is the assumption that the macro economic fundamentals in the U.S. are improving,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said by phone from London.
Yields on five-year note yields rose three basis points to 1.67 percent, reaching a three-month high. Thirty-year bonds gained for the first time in three days, pushing the yield down nine basis points to 3.82 percent, amid wagers inflation will stay in check as the Fed slows purchases.
The gap between five- and 30-year yields, called the yield curve, shrank 20 basis points this week, the most since May 2012.
“The perception was the curve would steepen because the Fed wouldn’t taper,” said Thomas di Galoma, head of U.S. rates sales at ED&F Man Capital Markets in New York. “The exposure everybody had was a steepening trade. What’s happening is a lot of these trades are coming off. There are too many trades in the market, they’ve got to be sorted out.”
Trading in S&P 500 stocks was 55 percent higher than the 30-day average and volume of Dow Jones Industrial Average shares was 64 percent higher. About 9.7 billion shares changed hands in the U.S., the most since June. Futures and options contracts expired today in a process known as quadruple witching.
Announced index changes, such as the addition of Facebook Inc.’s inclusion in the S&P 500, take effect after the markets close. The operator of the S&P 500 will also rebalance the index in a quarterly move to adjust member weightings.
Money managers needed to buy and sell about $13.8 billion of shares as they shuffle their funds to mimic changes in the S&P 500, according to estimates from Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices in New York. He forecast utility companies would see the biggest increase in their representation while the weighting of consumer staples will drop the most.
Nine of the 10 main industries in the S&P 500 advanced, with utility, technology and industrial shares rallying at least 0.7 percent for the biggest gains.
Red Hat Inc. surged 14 percent as the software company raised its full-year profit and sales forecasts. Carnival Corp. added 2.1 percent as Credit Suisse Group AG recommended that investors buy shares in the world’s largest cruise operator. CarMax Inc. declined 9.4 percent as the largest U.S. seller of used cars posted earnings that missed analysts’ estimates.
European equities climbed 3.2 percent over the last three days, their biggest rally since June. BAE Systems Plc dropped 4.5 percent today after the arms manufacturer said that the United Arab Emirates has stopped talks to buy Typhoon fighter jets.
The Turkish lira fell to a record against the dollar and the euro as the government dismissed more police chiefs investigating corruption in the prime minister’s political circle. It weakened 0.9 percent to 2.0912 per dollar and 1 percent to 2.8616 per euro. The Bloomberg U.S. Dollar Index slipped 0.2 percent.
Gold rose 0.8 percent to $1,203.70 an ounce in New York after falling 3.4 percent yesterday to its lowest close since August 2010. Goldman Sachs Group Inc. said bullion’s decline isn’t over as it heads for the biggest annual drop since 1981. Futures have slumped 29 percent so far in 2013. Zinc and lead increased at least 1.9 percent to lead the S&P GSCI Index of commodities up 0.8 percent to a two-month high.
The MSCI Emerging-Market Index slipped 0.3 percent to a one-month low as India’s Sensex rallied 1.8 percent while Argentina’s benchmark index dropped 1.7 percent. The Shanghai Composite Index slumped for a ninth day, its longest streak of losses since 1994.
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