Dow Climbs Past 13,000 as Treasuries Retreat; Metals Rise

ECB President Mario Draghi
Mario Draghi, president of the European Central Bank (ECB). Photographer: Hannelore Foerster/Bloomberg

The Dow Jones Industrial Average surpassed 13,000 for the first time since May, while Treasuries fell and commodities gained on speculation the European Central Bank will purchase bonds to help lower borrowing costs and ease the debt crisis.

The Dow average rallied 1.5 percent to 13,075.66 at 4 p.m. in New York and posted the biggest two-day jump since December. The Standard & Poor’s 500 Index rose 1.9 percent to 1,385.97. Ten-year Treasury note yields added nine basis points, the most in almost four months, to 1.53 percent. S&P’s GSCI gauge of 24 raw materials increased 1 percent. The euro appreciated 0.2 percent to $1.2301. A measure of U.S. corporate debt risk dropped for a third day.

Stocks extended gains after two central bank officials said European Central Bank President Mario Draghi will hold talks with Bundesbank President Jens Weidmann in an effort to overcome the biggest stumbling block to a new raft of measures including bond purchases. German Chancellor Angela Merkel and French President Francois Hollande said their countries are “bound by the deepest duty” to keep the euro area intact and that they will do “everything” necessary to protect the single currency.

“Any ECB actions to buy bonds extend the lifeline to the region as the political leaders grapple for other solutions,” John Augustine, who helps manage $25 billion as chief market strategist at Cincinnati-based Fifth Third Bancorp, said in a phone interview. “This is what the market is focused on.”

Buying Bonds

Having secured the backing of governments in Spain, France and Germany, Draghi is now seeking to win over ECB policy makers for a multi-pronged approach to reduce bond yields in countries such as Spain and Italy, the officials said on condition of anonymity because the talks are private. The proposal involves Europe’s rescue funds buying government bonds on the primary market, flanked by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, the officials said.

The euro gained as much as 0.9 percent to $1.2390, before trimming its advance amid speculation that the cost of further moves to protect the currency will weaken it.

“The realization became for the market that if we are going this route of another round of massive bond buying, that is going to have some pretty severe implications for the ECB’s balance sheet,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, said in a telephone interview.

The 17-nation currency has strengthened 1.2 percent this week, the most since February. Canada’s dollar rallied to a 10-week high against its U.S. counterpart, climbing 0.5 percent to C$1.0050 per U.S. dollar.

Weekly Gain

The S&P 500 has risen 1.7 percent this week and closed today at the highest level since May. The Dow average is up 2 percent for the week.

In the U.S., data showed that the economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending. Consumer confidence in July dropped to the lowest this year, according to a separate report. Cooling growth makes it harder to reduce unemployment, helping explain why Federal Reserve Chairman Ben S. Bernanke has said policy makers stand ready with more stimulus if needed.

Earnings Season

Merck & Co. and Amgen Inc. added at least 4 percent after earnings beat estimates. Expedia Inc., an online-travel company, surged 20 percent after boosting its dividend.

Facebook Inc. tumbled 12 percent after reporting slower sales growth and narrower profit margins. Operating margin, excluding certain costs, was 43 percent in the second quarter, a drop from 53 percent a year earlier, amid a fourfold surge in sales and marketing expenses, the company said yesterday.

Starbucks Corp., the world’s largest coffee-shop chain, plunged 9.4 percent after forecasting fourth-quarter profit that missed estimates. Cie. de Saint-Gobain SA, Europe’s biggest supplier of building materials, tumbled 11 percent after cutting its full-year outlook, citing Europe’s economic crisis.

The Stoxx Europe 600 Index rose 1.3 percent today and posted an eighth weekly advance. Total SA, France’s largest oil producer, climbed 3.4 percent as second-quarter profit rose. Barclays Plc surged 8.7 percent after reporting earnings that beat analysts’ estimates on growth in retail and investment banking.

More Optimism

Spanish and Italian bonds surged for a third day as Italy’s 10-year yields fell below 6 percent for the first time in a week. Spain’s 10-year yields fell 18 basis points to 6.74 percent.

“There is a little bit more optimism about a plan coming together from European policy makers,” said Michael Cloherty, head of U.S. interest-rate strategy in New York at Royal Bank of Canada’s RBC Capital Markets unit, one of 21 primary dealers that trade directly with the Fed.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 3.3 basis points to a mid-price of 108 basis points, according to prices compiled by Bloomberg.

Oil rose for a fourth day, climbing 74 cents to settle at $90.13 a barrel in New York. Gold advanced 0.2 percent to settle at $1,622.70 an ounce. Earlier, the price reached $1,633.30, the highest for a most-active contract since June 19.

The MSCI Emerging Markets Index climbed 2.8 percent. South Korea’s Kospi index led gains among emerging-market gauges, climbing 2.6 percent, the most since January. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong advanced 2 percent. Benchmark indexes added 0.4 percent in Russia and South Africa.

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