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S&P 500 Advances While Bonds Fall on Earnings, Economy

Photographer: Eddie Seal/Bloomberg

West Texas Intermediate oil rose 1.1 percent. Close

West Texas Intermediate oil rose 1.1 percent.

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Photographer: Eddie Seal/Bloomberg

West Texas Intermediate oil rose 1.1 percent.

The Standard & Poor’s 500 Index rose, giving it the best three-day rally in two months, while Treasuries fell as Yahoo! Inc. jumped on earnings and U.S. industrial production increased. The pound strengthened and copper advanced.

The S&P 500 climbed 1.1 percent at 4 p.m. in New York, for a three-day advance of 2.6 percent and erasing its loss for the year. The Nasdaq Composite Index (CCMP) jumped 1.3 percent. The MSCI All-Country World Index added 1 percent, the most in more than a month. The yield on five-year Treasury notes increased three basis points to 1.65 percent after comments by Federal Reserve Chair Janet Yellen. The Stoxx Europe 600 Index jumped 1.3 percent. The pound approached a four-year high against the dollar and the yield on 10-year gilts increased four basis points to 2.64 percent as the U.K. jobless rate fell. Copper advanced 1.1 percent, the most in two weeks.

Yahoo surged as earnings were boosted by results at Alibaba Group Holding Ltd., China’s largest e-commerce company. U.S. industrial production rose more than forecast in March, indicating factories recovered after a weather-depressed start to the year, and Yellen said the central bank has a “continuing commitment” to support the economic recovery. Other data showed China’s economic growth slowed less than forecast in the first quarter.

“The macro data continues to come in reasonably firm and we don’t think valuations on the stock side suggest we’re overdone,” Jim Russell, a senior equity strategist at U.S. Bank Wealth Management, said by phone. “The market is finding some sort of natural trading level to bounce out of and we’re seeing slightly better-than-expected earnings and second-quarter outlooks from management that seem to be encouraging.”

Earnings Season

The S&P 500 gained 0.7 yesterday as earnings from Coca-Cola Co. and Johnson & Johnson outweighed concern about the escalating conflict in Ukraine. The index had dropped 4 percent from its April 2 record as investors sold Internet and biotechnology stocks, the best performers during the five-year bull market, amid concern valuations had become too expensive before earnings.

The Nasdaq Composite yesterday erased a decline of 1.9 percent after nearing its average price in the past 200 days. The gauge gained 2.2 percent over three days, and is now down 6.2 percent from a March high. Stocks in the index trade at 35 times reported earnings, twice the ratio for S&P 500 members.

Eighteen S&P 500 companies were scheduled to report earnings today. Profit per share for the index’s constituents probably dropped 0.9 percent in the first quarter, according to analyst estimates compiled by Bloomberg. Revenue climbed 2.6 percent from a year earlier, the projections show.

Yahoo Surges

Yahoo jumped 6.3 percent after Alibaba, the Chinese e-commerce company that is planning to file for a U.S. initial public offering, posted a 66 percent sales surge for the last three months of 2013 and its fifth straight quarterly profit gain. Yahoo owns about 24 percent of Alibaba.

Bank of America Corp. slipped 1.6 percent after the second-biggest U.S. lender swung to a quarterly loss as it settled disputes tied to mortgage bonds. Semiconductor stocks paced declines in the S&P 500 after Linear Technology Corp. sank 4.4 percent as sales missed forecasts.

Google Inc. Class C shares sank 5.9 percent in extended trading after the company reported sales that missed estimates. International Business Machines Corp. lost 3.9 percent as sales declined for the eighth straight quarter.

Treasury notes fell as Yellen, speaking today to the Economic Club of New York, said the central bank has a “continuing commitment” to support the recovery even as policy makers now see the economy reaching full employment by late 2016. She told investors to pay attention to shortfalls in both inflation and the jobless rate for signals on the Federal Open Market Committee’s decisions on the policy rate.

Target Range

“The larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained,” Yellen said.

She said in March the central bank may start to increase borrowing costs “around six months” after concluding its asset-buying stimulus program. Since then, minutes of the Fed’s latest meeting showed the central bank played down predictions by some of its own policy makers that interest rates might rise faster than they had forecast earlier.

Fed policy makers are unwinding the bond-buying program they have used to support the economy, while keeping their target for overnight lending between banks in a range of zero to 0.25 percent since 2008.

“It’s completely consistent with what she and the Fed has been saying over the past three years,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, said of Yellen’s comments today.

Beige Book

The Fed said today the U.S. economy continued to expand in most regions as businesses benefited from a bounce back from harsh winter weather earlier in the year. Eight of 12 Fed districts characterized growth as “modest or moderate,” the Fed said in its Beige Book business survey, based on reports gathered before April 7.

Output at U.S. factories, mines and utilities climbed 0.7 percent in March after a revised 1.2 percent increase the prior month, figures from the Fed showed. The median forecast in a Bloomberg survey of economists called for a 0.5 percent rise. Manufacturing, which makes up 75 percent of total production, grew 0.5 percent.

A separate report showed the pace of U.S. home construction rebounded less than forecast in March, held back by declines in warmer parts of the country that indicate the recovery in residential building will be slow to develop.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, fell 9.2 percent to 14.18. The measure has climbed 3.4 percent for the year.

Russell Investments, the U.S. asset manager that oversees $257 billion, bought protection against a drop in equities shortly before last week’s selloff. The firm acquired puts on the S&P 500 before last week’s 2.7 percent slide, Alain Zeitouni, head of multi-management at Russell Investments France said.

“Protection is cheap and we’re a bit cautious,” Zeitouni said in Paris on April 10. “We don’t see a big rally in equities in the U.S. We’ve been expecting a correction.”

The Stoxx 600 climbed the most since March 4, with all of the 19 industry groups rising. Tesco Plc, the U.K.’s largest retailer, advanced 2.6 percent as quarterly sales advanced in some European markets. Syngenta AG (SYNN) gained 2.3 percent after the world’s largest maker of crop chemicals posted first-quarter revenue that met analysts’ estimates and confirmed its full-year sales target.

European Stocks

Credit Suisse Group AG (CSGN) dropped 1.5 percent after the second-biggest Swiss bank said quarterly profit fell 34 percent. ASML Holding NV tumbled 5.3 percent after Europe’s largest semiconductor-equipment supplier forecast second-quarter sales will be lower than analysts had projected.

Russia’s Micex Index (INDEXCF) of stocks rose for the first time in four days, adding 0.9 percent, and the ruble snapped a three-day slump.

After freeing a nearby airfield yesterday, Ukraine sent armored vehicles into the Donetsk region town of Kramatorsk, where pro-Russian forces have clashed with police. NATO will upgrade contingency plans, hold more military drills in eastern Europe and step up air and naval policing on its flanks, Secretary General Anders Fogh Rasmussen said. Envoys from Ukraine, Russia, the U.S. and European Union are scheduled to hold talks tomorrow in Geneva on the situation.

China’s Economy

The Shanghai Composite Index (SHCOMP) rose 0.2 percent, while the Hang Seng China Enterprises Index of Chinese shares in Hong Kong added less than 0.1 percent. Gross domestic product increased 7.4 percent in the January-to-March period from a year earlier, the statistics bureau in Beijing said, compared with the 7.3 percent median estimate in a Bloomberg News survey of analysts. Industrial production and fixed-asset investment fell short of projections.

Copper climbed 1.1 percent to $3.016 a pound. China is the biggest consumer of energy and industrial metals.

West Texas Intermediate crude retreated from a six-week high after a government report showed U.S. supplies rose more than 10 million barrels last week. Inventories grew more than five times as much as forecast in the Energy Information Administration report. Futures rose 1 cent to $103.76 a barrel, after reaching as high as $104.99.

Gold Gains

Gold futures advanced 0.2 percent, rebounding from the biggest drop in 16 weeks, as turmoil in Ukraine spurred demand for the precious metal as a haven. The metal plunged 2 percent yesterday.

The pound gained as much as 0.5 percent to $1.6818, approaching $1.6823 reached on Feb. 17, the highest since November 2009. Britain’s unemployment rate fell more than economists forecast to 6.9 percent, below the 7 percent threshold that Bank of England Governor Mark Carney set under the first stage of his forward-guidance policy.

New Zealand’s dollar, the first quarter’s best-performing major currency, weakened on slower-than-projected inflation and a decline in the GlobalDairyTrade Price Index. The currency fell 0.2 percent to 86.26 U.S. cents.

The yen slipped 0.3 percent to 102.26 per dollar as better-than-forecast economic growth in China damped demand for safer assets. The euro was little changed at $1.3816.

To contact the reporters on this story: Callie Bost in New York at cbost2@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland

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