Dow Average Rises to 5-Year High; Euro, Italy Bonds Gain
Stocks rallied, sending the Dow Jones Industrial Average to the highest since October 2007, as Italy sold debt amid political turmoil and U.S. data bolstered confidence in the world’s largest economy. The euro rebounded from a seven-week low and Italian 10-year bonds gained.
The Dow added 175.24 points to 14,075.37, less than 90 points below its record. The Standard & Poor’s 500 Index climbed 1.3 percent to 1,515.99 as a two-day rally erased its 1.8 percent slump on Feb. 25. The euro appreciated 0.6 percent to $1.3137 while Italy’s 10-year bond yield dropped nine basis points to 4.81 percent after jumping 41 points yesterday. The Nikkei 225 Stock Average (NKY) capped its worst two-day drop since 2011. Gasoline and gold led commodities lower. Ten-year Treasury yields rose two basis points to 1.90 percent.
Italy sold 6.5 billion euros ($8.5 billion) of five- and 10-year bonds in its first auction following inconclusive election results that pushed yields to a four-month high yesterday. Federal Reserve Chairman Ben S. Bernanke said recent increases in some interest rates may signal the economy is gaining vigor. Orders for U.S. durable goods excluding transportation gear climbed in January by the most in a year, while pending home sales increased more than forecast.
“The economic numbers have been pretty good,” Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said in a telephone interview. “The rebound in housing will hopefully help the economy. The foundation is a lot stronger today. That tells me there’s still room for stocks to move higher.”
The Dow’s advance was led by JPMorgan Chase & Co., Caterpillar Inc. and Boeing Co., with each jumping more than 2 percent. The S&P 500 has rallied about 1.9 percent in two days, bringing it to about 3 percent below its October 2007 record. Today’s gain erased its 1.8 percent slump on Feb. 25, which was triggered by concern that the Italian elections will worsen the region’s debt crisis.
Gauges of industrial, commodity and financial shares rose at least 1.6 percent to lead gains in all 10 of the main industry groups in the S&P 500 today.
Priceline.com Inc., the biggest online travel agency by market value, jumped 2.6 percent after revenue growth in international markets pushed profit past analysts’ estimates. FedEx Corp., operator of the world’s largest cargo airline and an economic bellwether, jumped 2.5 percent to pace gains in transportation shares. First Solar Inc., the world’s largest maker of thin-film solar panels, tumbled 14 percent after saying its “expected revenue” fell 15 percent last year.
Apple Inc. (AAPL) slid 1 percent as Chief Executive Officer Tim Cook, saying he’s in “very, very active” talks about what to do with the company’s growing cash pile, did little to assuage investors seeking more clarity on his plans.
Benchmark indexes opened higher and rallied all day. U.S. bookings for equipment meant to last at least three years minus demand for things such as aircraft, which is often volatile, climbed 1.9 percent, exceeding the median forecast of economists surveyed by Bloomberg and the most since December 2011, Commerce Department data showed. Total orders dropped more than projected, reflecting the biggest slump in defense bookings in a decade.
An S&P index of homebuilders jumped 2.2 percent. The index of pending home resales increased 4.5 percent to 105.9, the highest level since April 2010, after a revised 1.9 percent drop the prior month, a report from the National Association of Realtors showed. The median forecast in a Bloomberg survey called for a 1.9 percent advance.
Bernanke also said the central bank’s easing policies are helping to improve demand for homes and cars, and that the housing market is recovering. He was continuing his semi-annual testimony to Congress after speaking yesterday in the Senate.
Increases in some interest rates have risen in recent months indicates the Fed’s stimulus is working, Bernanke said. The rate on a fixed 30-year mortgage climbed to 3.56 percent in the week ended Feb. 21 from a low of 3.31 percent on Nov. 22, according to data from Freddie Mac.
“The fact that interest rates have gone up a bit is actually indicative of a stronger economy,” Bernanke said.
The Stoxx Europe 600 Index (SXXP) added 0.9 percent. European companies from Bouygues SA, France’s second-largest builder, to European Aeronautic, Defence & Space Co. reported earnings that beat estimates.
Bouygues rallied 13 percent, the most in 18 months, after forecasting margins will widen this year. EADS (EAD), the parent of Airbus, climbed 6.5 percent after predicting earnings will rise in 2013. Swiss Life Holding AG surged 8.7 percent as Switzerland’s biggest life insurer maintained its dividend and reported a narrower-than-estimated loss.
Vodafone Group Plc (VOD) advanced 2 percent as three people familiar with the matter said the mobile-phone company has put plans to approach Kabel Deutschland Holding AG about a takeover on hold. Kabel Deutschland slid 3.7 percent.
Italian 10-year securities pared a monthly decline as the Rome-based Treasury sold 4 billion euros of new 10-year bonds at an average yield of 4.83 percent. That’s up from 4.17 percent at a Jan. 30 auction. It allotted 2.5 billion euros of five-year notes at 3.59 percent, compared with 2.94 percent at last month’s sale.
European Union leaders piled pressure on Italy’s rival factions to form a unity government committed to budget rigor. EU President Herman Van Rompuy warned in Tallinn, Estonia, that backsliding on budget discipline and economic reforms would shatter market confidence in the 17-nation currency union’s crisis management.
European Central Bank President Mario Draghi said there are limits to what monetary policy can do and urged governments to implement structural reforms and build a sound political and economic union in the euro region.
“It is important to stress that the ECB’s mandate only extends so far,” Draghi said in a speech in Munich today. “There are clear limits to what monetary policy can and should aim to achieve. We cannot repair unsound budgets. We cannot clean up struggling banks. We cannot solve deep-rooted problems in the structure of Europe’s economies.”
Gasoline plunged 2.5 percent to $2.9081 a gallon as government report showed rising East Coast inventories as refineries restored production following maintenance.
The S&P GSCI Index of commodities decreased 0.5 percent even amid gains in 13 of the 24 commodities it tracks. Gold fell for the first time in three days as growing confidence about the economic recovery curbed demand for a protection of wealth. Futures for April delivery fell 1.2 percent to $1,595.70 an ounce. The metal is set to drop for a fifth month, the longest run of monthly losses since 1997.
Options protecting against a decline in gold have surged to an all-time high after Fed meeting notes spurred speculation that economic stimulus will be curbed, easing the threat of inflation.
Puts that profit should the SPDR Gold Trust fall 10 percent cost 1.9 points more than calls betting on a 10 percent rally, according to three-month options data compiled by Bloomberg. The price relationship known as skew reached a record 3.3 on Feb. 21. The U.S. exchange-traded fund lost 3.6 percent this year and fell to an eight-month low on Feb. 20.
The Nikkei 255 capped a two-day, 3.5 percent slump after closing at its highest level since September 2008 on Feb. 25. Toyota Motor Corp. (7203), the world’s biggest automaker, sank 2.3 percent today. The MSCI Asia Pacific excluding Japan Index rose 0.5 percent, led by gains in Australia, Indonesia and India.
The MSCI Emerging Markets Index (MXEF) gained 0.4 percent, rebounding from a two-month low. The Shanghai Composite Index advanced 0.9 percent on speculation China will take steps to support equities. India’s Sensex gauge added 0.7 percent after a government economic survey said growth is recovering.
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