U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since October, amid optimism that European leaders will announce greater efforts to halt the debt crisis at a summit this week. Treasuries gained, commodities fell and the euro fluctuated.
The Dow rose 46.24 points, or 0.4 percent, to close at 12,196.37 and the Standard & Poor’s 500 Index advanced 0.2 percent at 4 p.m. New York time. The euro was little changed at $1.3412, recovering from a loss of as much as 0.4 percent. Ten-year Treasury yields decreased for the first time this week, losing six basis points to 2.03 percent. The S&P GSCI Index of commodities slumped 0.9 percent as sugar, coffee, gasoline and wheat lost more than 2 percent.
The S&P 500 erased an earlier loss in the final hour of trading after Nikkei reported that the Group of 20 nations is considering a $600 billion International Monetary Fund lending program to supplement Europe’s efforts to tame the sovereign-debt crisis. Stocks trimmed gains in the final minutes as CNBC said the IMF denied the report.
“It’s difficult to get a bottom line outcome on the European situation,” Philip Dow, director of equity strategy at Minneapolis-based RBC Wealth Management which oversees about $160 billion, said in a telephone interview. “Macro concerns are driving the market,” he said. “It’s a challenging environment to manage money.”
Financial shares in the S&P 500 rose 1.2 percent as a group, leading gains among seven of the 10 main industry groups. JPMorgan Chase & Co. climbed 2.3 percent after Chief Executive Officer Jamie Dimon said the company can buy back $1 billion or more in stock, adding that the bank may or may not repurchase more shares.
JPMorgan led the Dow’s advance, followed by gains of at least 1.2 percent in Bank of America Corp., Johnson & Johnson, Cisco Systems Inc. and American Express Co.
The S&P 500 extended its gain for the year to 0.3 percent and the Dow is up 5.4 percent in 2011.
Pressure on Europe’s leaders to halt the spread of the region’s debt crisis at a summit starting tomorrow intensified as the EU had its AAA long-term rating put on “creditwatch negative” by S&P following a similar action on 15 of the 17 euro governments. The action "does not have any impact on the sovereign credit ratings on non-Eurozone members of the European Union," John Piecuch, director of communications at S&P, said in an e-mail.
Deutsche Bank AG and BNP Paribas SA were among European lenders that also were given a negative outlook by S&P.
The Stoxx Europe 600 Index slipped 0.2 percent. Banca Monte dei Paschi di Siena SpA, Italy’s third-biggest bank, led a drop among lenders. ING Groep NV fell 4.7 percent after saying it plans to take a charge related to its U.S. annuity business.
European stocks gained earlier after the Financial Times reported yesterday that officials were negotiating a bigger rescue effort to discuss at the European summit, including running both temporary and permanent rescue funds in tandem. Gains evaporated after Germany rejected combining the current and permanent euro-area rescue funds and expressed pessimism over the outcome of this week’s summit.
Three euro-area officials with knowledge of policy makers’ deliberations said the European Central Bank may announce a range of measures tomorrow to fight the crisis.
Options for the ECB include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans, said the officials, who spoke on condition of anonymity because the discussions are private.
After U.S. financial markets closed, Canadian Finance Minister Jim Flaherty said today there has not been discussion among the Group of 20 nations on a $600 billion plan to boost lending to the IMF. He reiterated that Canada opposed the idea of the IMF leading a loan package for Europe and said the region’ s governments should solve the problem internally.
The euro depreciated against 11 of its 16 major peers, while the dollar weakened against 13.
Most international investors predict at least one nation will eventually dump the euro and they say greater fiscal ties or a smaller currency area are the best fixes for the region’s debt crisis, according to the quarterly Bloomberg Global Poll. Almost half the respondents in the poll say one or more countries will leave the 17-nation bloc within a year and almost a third more predict an exit by the end of 2016.
Never before has the euro influenced U.S. stocks as much as this year, a sign that American equities aren’t going anywhere until Europe’s crisis is solved.
The link between the Dow average and swings in the currency reached a record on Dec. 2, according to data compiled by Bloomberg. The so-called correlation coefficient showing how much two markets rise and fall in tandem hit 0.85, the highest level since the euro was founded in 1999, data on 60-day rolling averages show. A reading of 1 means assets are moving in lockstep.
German, Portugal Bonds
German bonds advanced after bids exceeded the target at an auction. The yield on the German five-year note fell seven basis points to 1.04 percent. Germany got bids for 8.67 billion euros ($11.6 billion) of five-year notes sold today, more than the maximum target of 5 billion euros, the Bundesbank said.
The Portuguese two-year note yield dropped 120 basis points to 15.94 percent, according to generic Bloomberg rates. The government issued bills due March 2012 at an average yield of 4.873 percent, down from 4.895 percent at a previous auction on Nov. 16. Italian 10-year bond yields reversed earlier declines, gaining 12 basis points to 5.99 percent.
The rate at which London-based banks say they can borrow for three months in dollars rose to the highest level since July 2009 as the euro region’s sovereign debt crisis intensifies. The London interbank offered rate, or Libor, for three-month dollar loans climbed to 0.54000 percent, from 0.53775 percent yesterday, data from the British Bankers’ Association showed.
The ECB said demand for three-month dollar loans jumped after it almost halved the cost of the funds in a concerted action with five other central banks including the U.S. Federal Reserve. The ECB said it will lend $50.7 billion to 34 euro-area banks tomorrow for 84 days at a fixed rate of 0.59 percent. That compares with the $395 million lent in the last three-month offering on Nov. 9 at a rate of 1.09 percent.