Dow Hits 2009 Closing High

U.S. stocks surged Monday, with the blue-chip Dow Jones industrial average reaching a new closing high for 2009. The basic materials, industrial, and financial sectors led the way after finance ministers from the Group of 20 industrialized nations pledged at a weekend meeting to keep money flowing with economic stimulus plans.

A flood of money and low interest rates are a "magic elixir" for stocks, says S&P MarketScope.

On Monday, the 30-stock Dow Jones industrial average finished higher by 203.52 points, or 2.03%, at 10,226.94, eclipsing its previous 2009 closing high of 10,092.19 on Oct. 19.

The broad Standard & Poor's 500-stock index was up 23.78 points, or 2.22%, at 1,093.08. The tech-heavy Nasdaq composite index gained 41.62 points, or 1.97%, to 2,154.06.

On the New York Stock Exchange, 25 stocks were higher in price for every five that declined. Breadth on the Nasdaq was 18-8 positive. But trading was only moderate, suggesting some skepticism, according to S&P.

Among the skeptics: Ed Yardeni. "I am running into more equity portfolio managers who are fully invested bears. They are fully invested because they've learned not to fight the Fed, which seems committed to keeping the federal funds rate at zero for the foreseeable future," wrote the president of Yardeni Research in a note Monday.

Treasuries ended mixed after a successful $40 billion refunding auction of three-year notes Monday.

The dollar index fell, nearing a 15-month low. There was no specific mention of currencies in the G-20 statement.

Gold futures finished higher, though below the record highs above the $1,100 per ounce level set earlier in Monday's session.

Oil futures were higher on fears that Hurricane Ida could disrupt Gulf of Mexico production.

Benchmark stock indexes in Europe rallied Monday, with London's FTSE 100 index up 1.80%, France's CAC-40 higher by 2.11%, and Germany's DAX index rising 2.40%.

Asian markets finished in the green Monday. Tokyo stocks rose 0.20%, Hong Kong climbed 1.73%, and Shanghai gained 0.36%.

M&A headlines lifted U.S. market sentiment Monday. Kraft Foods (KFT) is reportedly working on a hostile bid for Cadbury of Britain.

Meanwhile, General Electric (GE) and Comcast (CMCSA) agreed to cooperate on a $30 billion joint venture under which Comcast would assume control of GE's 80%-owned NBC Universal unit.

Also, mobile communications services provider Sprint Nextel (S) is planning to invest $1 billion in wireless broadband firm Clearwire (CLWR).

Northrop Grumman (NOC) announced a definitive agreement to sell TASC, Inc., its advisory services business, for $1.65 billion in cash to an investor group led by General Atlantic LLC and affiliates of Kohlberg Kravis Roberts & Co. L.P.

McDonald's (MCD) reported better than expected same-store sales.

RadioShack (S) shares jumped after the electronics retailer said that it will introduce Apple's (AAPL) iPhone 3G and iPhone 3GS in a limited number of company-owned stores in the Dallas-Fort Worth and New York City metropolitan areas beginning later this month. The company expects to introduce iPhone in stores nationwide in 2010.

Shares of Abercrombie & Fitch (ANF) gained after Credit Suisse upgraded its opnion on the stock to outperform from neutral. Goldman Sachs reportedly upgraded A&F to buy. The House of Representatives narrowly approved healthcare reform legislation over the weekend, putting that sector back in the spotlight. However, the Obama plan faces an uphill climb, as the government health insurance plan included in the House bill is unacceptable to a few Democratic moderates who hold the balance of power in the Senate.

If a government plan is part of the deal, "as a matter of conscience, I will not allow this bill to come to a final vote," said Sen. Joe Lieberman, the Connecticut independent whose vote Democrats need to overcome GOP filibusters.

G-20 leaders agreed at a meeting in St. Andrews, Scotland over the weekend to maintain policy stimulus as "the recovery is uneven and remains dependent on policy support, and high unemployment is a major concern." The G-20 also launched a framework to reach the goal of a more balanced and sustainable global growth and laid out a timetable on policy initiatives. The UK gave support to a tax on financial transactions - the so-called Tobin tax -- but the US made clear it would not support the idea. Foreign exchange policies will likely be part of the new rebalancing framework and pressure will mount for a Yuan appreciation.

The G-20 governments also said banks will be forced to cover a greater cost of future bailouts even as they split over whether that should be achieved by taxing financial trading. G-20 officials are narrowing their focus on reining in excessive risk-taking after uniting earlier this year to fight the worst financial crisis since the Great Depression. While the U.S. pushback on the Tobin tax means a transaction tax is unlikely to occur, the mere discussion of it may be enough to unsettle markets.

The International Monetary Fund said record low U.S. interest rates are funding global "carry trades" and the dollar is still overvalued as concerns mount that new financial imbalances are forming. "There are indications that the U.S. dollar is now serving as the funding currency for carry trades," the IMF said. "these trades may be contributing to upward pressure on the euro and some emerging-economy currencies." While the dollar "has moved closer to medium-run equilibrium," it is still "on the strong side." In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets.

The Fed says many banks expect to tighten terms on credit cards in response to a new law that aims to protect consumers from sudden rate hikes. A quarterly survey by the Fed found that many banks expect to increase rates, reduce credit limits and raise annual fees for both prime borrowers -- those with sound credit histories -- as well as more risky "non-prime" borrowers, who have tarnished credit. Banks already have been pushing through rate increases in anticipation of the new rules. Because of that, the House recently approved legislation to speed up the law's effective date and have the provisions take effect immediately, although prospects are dim for Senate passage. Most of the new credit card provisions are slated to take effect on Feb. 22.

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