Euro, Stocks Climb as German Court Approves Bailout Funds

Stocks, Euro Gain as German Court Allows ESM
A visitor stands and watches stock price information displayed on screens inside the Madrid stock exchange in Madrid. Photographer: Angel Navarrete/Bloomberg

The euro climbed to a four-month high and stocks rose for a second day as a German court allowed ratification of a bailout fund and investors awaited tomorrow’s Federal Reserve policy decision. Oil halted a five-day rally.

The euro added 0.3 percent to $1.2892 at 4 p.m. in New York as Irish, Italian, Spanish and Portuguese bonds rallied. The Standard & Poor’s 500 Index increased 0.2 percent. Ten-year Treasury yields increased six basis points to 1.76 percent, a three-week high. Oil fell, reversing an early gain of as much as 0.9 percent, after an unexpected jump in U.S. inventories. Platinum rallied 2.6 percent in London and the South African rand plunged as labor tensions escalated amid a mining strike.

The Stoxx Europe 600 Index climbed to a 14-month high and the Dow Jones Industrial Average closed at its best level since December 2007 after Germany’s Federal Constitutional Court cleared the way for ratification of the European Stability Mechanism. The Fed will make a policy statement tomorrow after a two-day meeting amid speculation the central bank will provide more stimulus.

“With the potential European action and the Fed action, those are two positives driving risk taking right now,” Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, said by phone. The firm manages $3.7 billion. “The near-term catalyst, up or down, is the Fed. It’s difficult for them to come out with a strong bond purchase plan just because of the amount of risk taking that’s going on in the market right now.”

Euro Strengthens

The euro strengthened versus 14 of 16 major peers, gaining the most versus the South African, Canadian and Brazilian currencies. The dollar weakened against 11 of its 16 major peers, losing the most versus Sweden’s krona, Norway’s krone and the euro.

The S&P 500 added to yesterday’s 0.3 percent gain as telephone, industrial and financial shares led gains among the 10 main groups.

Apple Inc. advanced 1.4 percent after introducing a new version of the iPhone that boasts a bigger screen, faster chip and access to speedier wireless networks, an overhaul aimed at widening its lead over Samsung Electronics Co. and Google Inc. in the $219.1 billion smartphone market.

Facebook Inc. rose 7.7 percent, its biggest advance since going public in May. The shares extending gains after Apple said the new iPhone has a built-in application for the social network that enables photo sharing and voice-activated posts. Facebook climbed earlier after Chief Executive Officer Mark Zuckerberg said he’s addressing the missteps that have made it hard to reap the benefits of mobile advertising.

Bank Shares

Capital One Financial Corp. and Huntington Bancshares rose more than 2 percent to lead gains in 21 of 24 stocks in the KBW Bank Index. PulteGroup Inc. advanced 6 percent as homebuilders rallied after Goldman Sachs Group Inc. said housing may finally rebound and Credit Suisse Group said a survey of real-estate agents showed momentum in prices is continuing.

The Fed is likely to announce a third round of bond purchases tomorrow, according to almost two-thirds of economists in a Bloomberg survey, while also extending the duration of its zero-interest-rate policy into 2015.

Chairman Ben S. Bernanke and his colleagues on the Federal Open Market Committee will once again roll out unconventional policies to bolster economic growth of less than 2 percent in the second quarter and bring down unemployment stuck above 8 percent for 43 straight months, the survey showed.

European Bonds

Spain’s 10-year bond yield fell seven basis points to 5.63 percent, with the rate on its two-year security sliding 11 basis points to 2.82 percent. The yield on two-year Italian debt slipped 12 basis points to 2.19 percent, while 10-year yields lost five basis points to 5.03 percent.

France wants Spain to snub German concerns and request help from the European Union to contain the financial crisis, according to three people familiar with negotiations.

The cost of insuring European high-yield corporate bonds using credit-default swaps fell to the lowest in more than a year. The Markit iTraxx Crossover index of credit-default swaps on 50 mostly junk-rated companies dropped 11 basis points to 491, the lowest since August 2011. The gauge measures the cost of insuring the borrowers’ debt and its nine days of declines is the longest since June 2010.

The rand plunged versus all 16 major peers, losing more than 1.7 percent versus the dollar and euro, as South African mediators failed to persuade striking Lonmin Plc worker representatives to return to work. Lonmin lost 5.9 percent in London and platinum futures rose for a seventh straight day, the longest rally in a year. Anglo American Platinum Ltd., the largest producer, said it suspended its Rustenburg operations after unidentified people intimidated workers.

The S&P GSCI gauge of 24 commodities rose 0.3 percent, climbing to the highest level since May 2.

The MSCI Emerging Markets Index advanced for a fifth day, adding 0.6 percent. The Hang Seng China Enterprises Index of mainland companies climbed 1.2 percent after Premier Wen Jiabao said yesterday that China has “ample” room to use fiscal and monetary policy to meet economic targets. India’s Sensex increased 0.8 percent. South Korea’s Kospi index climbed 1.6 percent before a central bank decision on interest rates tomorrow.

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