Stocks Rally, Led by Commodities

U.S. stock indexes closed higher Tuesday as as Wall Street extended a global rally fueled by hopes for a bullish third-quarter earnings season and a recovering global economy.

Basic materials, financial and commodity issues led the rally as the U.S. dollar plunged. Gold futures surged, reaching a record $1,045 per ounce Tuesday before retreating a bit to trade higher by $19.50 at $1037.30 per ounce late in Tuesday's session. Oil futures climbed above $71 per barrel.

Alcoa (AA), up 3.5% in Tuesday's session, kicks off earnings season on Wednesday.

A rate hike by the Australian central bank -- the first G20 nation to tighten since the start of the financial crisis -- suggested that the global economic recovery is stronger than expected, says S&P MarketScope.

On Tuesday, the 30-stock Dow Jones industrial average finished higher by 131.50 points, or 1.37%, at 9,731.25. The broad Standard & Poor's 500-stock index was up 14.26 points, or 1.37%, at 1,054.72. The tech-heavy Nasdaq composite index gained 35.42 points, or 1.71%, to 2,103.57.

On the New York Stock Exchange, 24 stocks were higher in price for every six that declined. Breadth on the Nasdaq was 20-7 positive.

Treasuries fell after an auction of $39 billion of three-year notes Tuesday afternoon.

The U.S. dollar index was off 0.31 to 76.33 in late trading, but up from its 76.22 session low after the Saudi Arabian central bank chief denied an Independent newspaper report the Saudis and other Arab producers planned to price oil on a basket of currencies, not the dollar.

Treasury Secretary Timothy Geithner called on the International Monetary Fund to provide rigorous surveillance to spot new investment bubbles and keep country foreign exchange policies in line with goals to rebalance the global economy, according to a Reuters report. Geithner said the IMF needed to help police economic and currency policies among the Group of 20 developed and emerging countries. "The IMF will need to be a truth-teller," Geithner said. "Under the new G20 framework for strong, sustainable and balanced growth, the IMF must provide forward-looking analysis of whether the world's major countries are implementing economic policies, including exchange rate policies, which are collectively consistent with G20 objectives."

Geithner said the global economy was stabilizing and showing initial signs of recovery but conditions remained fragile.

Reuters reported that New York Fed President William Dudley said a tepid economic recovery should allow the Fed to keep interest rates at rock-bottom lows for a prolonged period. Because the U.S. economy faces many headwinds, including an anemic labor market and a fragile banking system, Dudley said, inflation will not become a problem in the foreseeable future. "The recovery will turn out to be moderate by historical standards," Dudley said in a speech at Fordham Law School. "The banking system has still not fully recovered."

Bloomberg News reported Nobel Prize-winning economist Joseph Stiglitz said U.S. unemployment will keep rising and should be the focus for policy makers, and gains in the stock market show investors have been "irrationally exuberant" about a recovery. "There's a lot of risk going ahead of some big bumps," he said Monday in a Bloomberg Television interview from Istanbul, citing housing, commercial real estate and consumers' inability to pay off credit cards because of job losses. Reuters reported big oil producing nations denied a British newspaper report that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in trading oil. The U.S. dollar eased in response to the report, which was written by The Independent's Middle East correspondent Robert Fisk and cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong. It said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen, the Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, which includes Saudi Arabia and Kuwait.

But top officials of Saudia Arabia and Russia, speaking on the sidelines of International Monetary Fund meetings in Istanbul, denied there were such talks.

The Australian dollar was higher vs. the U.S. dollar after the Royal Bank of Australia, in a surprise move, raised its key interest rate 25 basis points to 3.25%.

U.K. August manufacturing unexpectedly slumped 1.9% month-over-month, vs. economists' median forecast of a 0.5% increase.

In company news Tuesday, Boeing (BA) said it expects to take a third-quarter pretax charge of about $1 billion, or $0.90 per share, due to increased production costs and the difficult market conditions affecting its 747-8 program. Boeing says it now expects the first flight of the 747-8 Freighter to occur by early next year with the flight test program taking place in 2010.

St. Jude Medical (STJ) shares fell Tuesday after the company said it expects to report third-quarter net sales of about $1.159 billion, below expectations. It now expects non-GAAP EPS to be $0.57-$0.58, vs. its previous guidance of $0.61-$0.63.

Mosaic Co. (MOS) posted first-quarter earnings per share (EPS) of $0.23, vs. $2.65 EPS one year earlier, on a 66% sales decline and a narrowed gross margin.

Pepsi Bottling Group (PBG) posted third-quarter EPS of $1.14 (including an $0.08 after-tax gain), vs. $1.06 EPS one year earlier despite a 4.7% revenue drop. Wall Street was looking for $1.05. For 2009, the company expects EPS results at the high end of its $2.30-$2.40 range.

Goldman Sachs is in talks to amend the terms of a $3 billion loan to CIT Group (CIT), according to a Wall Street Journal report.

Verizon Communications (VZ) said it is restructuring its two wireline business groups, Verizon Telecom and Verizon Business, into one organization, Verizon Wireline -- with the core objective of accelerating operational performance.

NutriSystem (NTRI) shares gained Tuesday after the company said it will begin selling its Nutrisystem 14-Day starter program at Wal-Mart (WMT) stores.

Avocent Corp. (AVCT) agreed to be acquired by Emerson (EMR) in a $1.2 billion deal. Terms: $25 cash per Avocent share.

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