U.S. Stocks Rise as European Shares, Italian Bonds Tumble

U.S. stocks rose, rebounding from the worst drop since November, as data on housing and consumer confidence bolstered optimism in the economy. European shares slid with Italy’s bonds as the nation’s election stalemate spurred concern the debt crisis will worsen.

The Standard & Poor’s 500 Index added 0.6 percent to 1,496.94 at 4 p.m. in New York after the U.S. gauge slid 1.8 percent yesterday. The Stoxx Europe 600 Index dropped 1.3 percent with volume 27 percent greater than the 30-day average. Italy’s FTSE MIB Index fell 4.9 percent, the most since April, and 10-year bond yields jumped 41 basis points to 4.9 percent. The euro was little changed at $1.3063 after plunging 1 percent yesterday. Ten-year Treasury yields increased two basis points to 1.885 percent after declining for four straight days.

U.S. equities recovered after plunging yesterday as early projections released following the close of European markets suggested Italy’s election would lead to a hung parliament and another vote. Democratic Party leader Pier Luigi Bersani, having campaigned to maintain budget rigor, won control of the lower house and not the Senate. Federal Reserve Chairman Ben S. Bernanke defended the central bank’s unprecedented asset purchases today, while reports on house prices, new-home sales and consumer sentiment beat economists’ estimates.

“The economic data suggests that there’s further healing going on in the housing market,” Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a telephone interview. “On a global basis, I don’t understand what’s going on in Italy. I think we’ll get beyond that and move forward. If bond yields continue rise, that may weigh on the market though.”

Market Leaders

PulteGroup Inc. and KB Home climbed at least 5.7 percent to pace gains among homebuilders. Home Depot Inc. rallied 5.7 percent, the most since May 2009, as it raised its dividend and approved a $17 billion share buyback after profit beat analysts’ estimates. Macy’s Inc., the second-largest U.S. department-store chain, gained 2.8 percent after forecasting earnings that beat projections.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, sank 11 percent to 16.87 after surging 34 percent yesterday in its biggest gain since 2011.

Home prices in 20 U.S. cities rose in the 12 months to December by the most in more than six years, with the S&P/Case-Shiller index of property values increasing 6.8 percent from December 2011, the biggest year-to-year gain since July 2006. The median projection of 30 economists surveyed by Bloomberg called for a 6.6 percent advance. Nineteen of 20 cities showed gains.

Purchases of new homes in the U.S. jumped in January to the highest level since July 2008, showing the industry will keep adding to growth in the economy. Sales, tabulated when contracts are signed, surged 15.6 percent to a 437,000 annual pace, exceeding the highest forecast in a survey of economists.

Consumer Confidence

The Conference Board’s consumer confidence index climbed to 69.6, exceeding all forecasts in a Bloomberg survey of economists, from a revised 58.4 in January. It was the first improvement in four months and the biggest since November 2011.

President Barack Obama’s administration released a report yesterday on how $85 billion in automatic spending cuts scheduled to begin next month will degrade programs from defense to education to public health. Even so, there isn’t a measure of money in the U.S. that is forecasting worse times ahead as lawmakers voice alarm that the cuts may damage the economy.

In European bond markets, the additional yield investors demand to hold 10-year Italian bonds instead of benchmark German bunds, a measure of perceived risk, increased 51 basis points to 344 basis points. Italy sold 8.75 billion euros ($11.5 billion) of six-month bills today at 1.237 percent, the highest since Oct. 29 and up from 0.731 percent at an auction of similar maturity debt Jan. 29.

Italian Bonds

Credit-default swaps insuring Italian bonds rose 41 basis points to 291, the highest level of the year. The Markit iTraxx Financial index of swaps linked to 25 banks and insurers climbed 17 basis points to 168, also the highest level of the year. Spain’s 10-year yield jumped 20 basis points to 5.37 percent and Portugal’s climbed 39 basis points to 6.56 percent.

The Stoxx 600 erased its monthly advance as more than seven shares fell for each one that advanced. Italian banks UniCredit SpA, Intesa Sanpaolo SpA and Banco Popolare SC sank more than 8 percent.

Delayed Sale

Credit-default swaps on Telecom Italia SpA jumped and the stock dropped 7.3 percent. The nation’s biggest phone company delayed a sale of as much as 3 billion euros ($3.9 billion) of hybrid bonds to boost its balance sheet until after the election.

In the four-way race in Italy, pre-vote favorite Bersani won the lower house by less than a half a percentage point. Former premier Silvio Berlusconi, who pledged to reverse austerity measures, won a blocking minority in the Senate.

“The surprising outcome of the Italian election has not only changed Italy’s political landscape,” Hans Redeker, head of global foreign-exchange strategy at Morgan Stanley in London, wrote in a report today. “The impact of the election result will be felt throughout Europe.”

The VStoxx Index, a gauge of the price of options prices on the Euro Stoxx 50 Index, climbed 22 percent to 25.9, the highest level since September.

Commodity Movers

Crude oil in New York fell 0.5 percent to $92.63 a barrel before a report that may show U.S. crude inventories rose. The S&P GSCI Index lost 0.8 percent to the lowest level since Jan. 16 as energy commodities led losses.

The MSCI Emerging Markets Index sank 1.1 percent, with benchmark gauges in China, India, Russia, Hungary, the Czech Republic and the Philippines dropping more than 1 percent. Trading volumes were 113 percent higher than the 30-day average for companies in Russia’s Micex Index. In Shanghai, 9.5 percent fewer shares changed hands than the 30-day average, while 14 percent more stocks traded in India.

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