Stocks, Euro Extend Gains as Germany, France Support Greece

Stocks, Euro Gain on Europe Debt Optimism
Frank T. Masiello of Barclays Capital, left, works at the New York Stock Exchange on Sept. 14, 2011. Photographer: Scott Eells/Bloomberg

Stocks rallied, sending the Standard & Poor’s 500 Index higher for a third day, and the euro extended gains as German and French leaders expressed support for Greece to remain in the euro monetary union and speculation grew that China may help Europe’s most-indebted nations.

The S&P 500 gained 1.4 percent to close at 1,188.68, while its December futures slid less than 0.1 percent as of 7:21 p.m. in New York. The Stoxx Europe 600 Index added 1.5 percent. The euro rose 0.6 percent to $1.3755. Ten-year Treasury yields fell one basis point to 1.98 percent. Oil futures fell 1.4 percent to $88.91 a barrel after an increase in fuel inventories and crude helped lead the S&P GSCI Index of commodities down 0.6 percent.

U.S. stocks and the euro extended gains as French President Nicolas Sarkozy and German Chancellor Angela Merkel said they’re convinced Greece will remain in the euro area, according to a statement issued by Sarkozy after they spoke to Greek Prime Minister George Papandreou by telephone. Italian and Spanish debt rose as Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission, said China is willing to buy bonds of nations hit by the debt crisis.

“It’s a relief rally,” John Carey, a Boston-based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $250 billion. “Over the last few days, there had been speculation that Germany was about to pull the plug and abandon the effort to keep Greece solvent and funded. Stocks have been beaten up and there are bargains. On the slightest bit of potentially good news, people tend to come in and scoop up some of those bargains.”

Plunge Erased

The S&P 500 climbed to the highest level since Sept. 7, with the three-day rally erasing a 2.7 percent slide on Sept. 9 that was triggered by reports Germany was preparing to shore up banks in the event of a Greek default.

Industrial, consumer-discretionary and technology companies climbed at least 1.6 percent collectively to lead gains among all 10 of the main industry groups in the S&P 500. General Electric Co., Home Depot Inc. and Walt Disney Co. rose at least 2.5 percent for the biggest gains in the Dow Jones Industrial Average, which surged 140.88 points, or 1.3 percent, to 11,246.73. Yahoo! Inc. climbed 2.1 percent as investor Third Point LLC ramped up pressure on the company’s board, saying it may add to its 5.2 percent stake and the All Things D blog reported that potential buyers were preparing bids for the company.

Greece’s Papandreou today committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements distributed by Athens and Paris. Sarkozy and Merkel “are convinced that the future of Greece is in the euro zone,” the French statement said, easing concern that the monetary union may fall apart. European equity markets closed before the statement was released.

Austria Vote

The S&P 500 briefly erased gains and European stocks trimmed their advance earlier as Austria’s finance ministry said a parliamentary vote on an overhaul of the European Financial Stability Facility bailout fund will be delayed. The parliament’s finance committee rejected adding the item to the agenda of a meeting today.

China is willing to offer assistance, NDRC’s Zhang said without elaborating, adding that Premier Wen Jiabao made similar remarks earlier, according to a transcript distributed on the planning agency’s website yesterday evening. Caijing magazine attended the briefing and published an article earlier.

U.S. stocks rose even after the Commerce Department said retail sales were unchanged in August, following a 0.3 percent gain for July that was smaller than previously estimated. The median forecast of 83 economists surveyed by Bloomberg News was a 0.2 percent rise. Another report from the Commerce Department showed inventories rose a less-than-forecast 0.4 percent in July, indicating companies are bracing for a slowdown in demand.

Credit Risk

A gauge of U.S. corporate credit risk declined for a second day from a two-year high. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 2.1 basis points to a mid-price of 129 basis points, according to index administrator Markit Group Ltd.

Concern the global economy will slip back into a recession amid a worsening sovereign-debt crisis triggered an 18 percent plunge in the S&P 500 between the end of April and Aug. 8. The index has rebounded 6.2 percent since. The Stoxx 600 climbed 2.4 percent in two days after reaching a two-year low at the beginning of the week. Developing nation equities entered a bear market yesterday, with the MSCI Emerging Markets Index extending its loss from its high for the year to 20 percent and slipping another 1.2 percent today.

U.S. Pessimism

Pessimism about the economy has deepened and confidence in both U.S. political parties has fallen, with only 20 percent saying the country is on the right course. As little as 9 percent of Americans say they are confident the economy won’t slide into a recession, according to a Bloomberg National Poll.

Ten-year Treasury yields reached an all-time low of 1.877 percent on Sept. 12 and gold futures rallied to a record $1,923.70 an ounce on Sept. 6 as investors pursued assets considered to be the most safe. Gold for December delivery lost 0.2 percent to $1,826.50 today.

Treasury 30-year bonds rose today after the U.S. sold $13 billion of the securities at a record low yield of 3.31 percent amid bets the Federal Reserve will buy more bonds. The auction was the last of three sales totaling $66 billion this week. Existing 30-year bond yields lost six basis points to 3.27 percent.

Driving the Markets

“At the end of the day, Europe is still driving these markets for the foreseeable future,” said Justin Lederer, an interest-rate strategist at primary dealer Cantor Fitzgerald LP in New York. “We might see small moves, but the European problems have underscored these low rates.”

Almost six shares advanced for each that declined in the Stoxx 600. Next Plc rallied 6.3 percent as the U.K.’s second-largest clothing retailer reported a gain in first-half earnings and said next year may not be as challenging for the industry.

Societe Generale SA, France’s third-largest bank by assets, fell 2.9 percent after Moody’s Investors Service cut its long-term debt rating by one level. BNP Paribas SA, which was kept on review for a possible cut, lost 3.9 percent.

Oil, Gasoline

Crude oil declined after the U.S. government reported that fuel inventories climbed, demand dropped and retail sales stalled in the world’s biggest oil-consuming country. Futures decreased as much as 2.2 percent after the Energy Department said gasoline supplies rose 1.94 million barrels last week, the biggest gain since June. Fuel use fell 3.8 percent. Gasoline for October delivery lost 0.6 percent to $2.7258 a gallon on the New York Mercantile Exchange.

Societe Generale went “underweight” on commodities, saying the asset class is “in the danger zone.”

“Prices of cyclically sensitive commodity prices, such as crude oil and copper, have held up well over recent weeks despite the recent deceleration in economic activity, and we believe that this should contribute to a meaningful drop,” the French bank said in its cross-asset research report. Societe Generale is recommending investors position for higher gold prices and lower oil prices.

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