Stocks Rise After China Inflation Slows; Yen, Euro Gain

Stocks rose for a second day and industrial metals rallied as slower-than-forecast Chinese inflation eased pressure on policy makers to tighten credit. The yen rebounded after a three-day slump took it to the weakest level since 2009 while the dollar weakened versus most peers.

The MSCI All-Country World Index advanced 0.6 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index rose 0.4 percent to 1,568.61 and Brazil’s benchmark index jumped 1.4 percent. Ten-year Treasury yields were little changed at 1.75 percent after declining earlier. The S&P GSCI gauge of 24 commodities added 0.8 percent with silver, copper, zinc and gold helping lead gains. The yen rose 0.4 percent to 99 per dollar, while the U.S. currency slid against 15 of 16 major peers.

China’s inflation eased more than forecast last month from a 10-month high as food-price gains ebbed. Federal Reserve Chairman Ben S. Bernanke said economic conditions were far from where he would like them to be. The two-day rally in stocks erased most of last week’s 1 percent drop in the S&P 500, its worst loss of the year. Nine companies in the benchmark gauge of U.S. equities are scheduled to report quarterly results this week.

“The commodity pop is basically tied to the view on China,” Ralph Shive, the South Bend, Indiana-based manager of the $1.2 billion Wasatch-Large Cap Value Fund, said in a phone interview. “The market is acting strongly. It doesn’t seem to want to go down. You get dips, and they seem to pop right back.”

Market Movers

Gauges of commodity, telephone and financial companies rose at least 0.7 percent to lead the advance among nine of the 10 main industries in the MSCI All-Country World Index. The global benchmark has retreated about 1 percent from an almost five-year on March 15. The S&P 500 yesterday added 0.6 percent after disappointing jobs data dragged it lower last week.

Raw-material producers jumped 1.1 percent as a group to lead the advance among seven of the 10 main industries in the S&P 500 as Cliffs Natural Resources Inc. rallied 8.8 percent. First Solar Inc. jumped 46 percent, its best gain ever, after the world’s largest thin-film solar manufacturer forecast 2013 sales above estimates. J.C. Penney Co. reached 12 percent to $13.93, its lowest price since 2001, after ousting Chief Executive Officer Ron Johnson and reinstating his predecessor, Myron E. Ullman III.

Alcoa Inc., the largest American aluminum producer and first Dow Jones Industrial Average company to report quarterly results, closed unchanged as earnings exceeded analysts’ estimates while revenue trailed projections. The shares rallied 1.8 percent yesterday before the report.

‘Lowered Expectations’

Earnings-per-share at S&P 500 companies probably fell 1.8 percent in the first three months of the year, the first year-over-year drop since 2009, analyst estimates compiled by Bloomberg show. Three straight years of profit growth helped propel the benchmark index up as much as 132 percent since 2009 to a record 1,570.25 on April 2. The gauge’s valuation was 15.5 times reported adjusted earnings on that day, the highest in more than two years.

“Over the last four quarters, analysts have cut their forecasts too aggressively going into reporting season, resulting in consistent beats on lowered expectations,” Savita Subramanian, Bank of America Corp.’s head of U.S. equity strategy, wrote in a report dated April 8. “Recent data suggest that the magnitude and the proportion of positive surprises may be lower this quarter” compared with the fourth quarter, she wrote. “Headwinds include the deterioration in management guidance, weaker economic data in March, and the rising dollar.”

Earnings, Economy

More than four companies forecast earnings below analysts’ average estimate in March for each that predicted profit above, according to data compiled by Bloomberg. The Citigroup Economic Surprise Index for the U.S., which gauges how much reports in the past three months beat or trailed the average economist forecast, slid to 2.9 yesterday, the lowest level since February. The Dollar Index is trading near an almost eight-month high of 83.49 reached on April 4.

HSBC Holdings Plc’s global head of equity strategy, Garry Evans, said there are signs that earnings are picking up and predicted the S&P 500 will return a further 7 percent this year including dividends, while saying there may be a “modest correction” in the short term as economic growth disappoints investors during the summer months.

HSBC raised U.S. stocks to overweight, while cutting European equities to underweight and boosting Japan to neutral. U.S. and Australian stocks were cut to neutral from overweight by Citigroup Inc. strategists led by Robert Buckland, who cited valuations. Global emerging-market equities were raised to overweight from neutral at Citigroup.

The Stoxx Europe 600 Index added 0.15 percent. Mining companies led gains, with Rio Tinto Group, Lonmin Plc and Kazakhmys Plc rising at least 4.8 percent. The Stoxx 600 Basic-Resources Index surged 3.3 percent, the most in a month.

Emerging Markets

The MSCI Emerging Markets Index rose the first time in seven days, adding 0.9 percent. The Hang Seng China Enterprises Index of mainland companies increased 1.7 percent, the most since March 20. The consumer price index rose 2.1 percent in March from a year earlier, compared with the 2.5 percent median of 38 estimates in a Bloomberg survey. Russia’s Micex Index closed 1.2 percent higher.

The U.S. dollar weakened against 15 of 16 major peers, losing more than 0.7 percent versus the South African, New Zealand and Australian currencies. The euro strengthened against 13 of 16 major peers, reaching a one-month high against the dollar and a three-year high versus the yen. The yen weakened versus nine of 16 peers.

‘Still Digesting’

The Bank of Japan last week announced plans to double its asset purchases, prompting the yen to slid to a four-year low against the dollar.

“I think the market is still digesting the Bank of Japan announcement,” Anastasia Amoroso, a global market strategist at JPMorgan Funds, said in a phone interview. The unit manages about $400 billion. “The reaction has been very pronounced in Japan, but not so much in the U.S. or the rest of the world. More and more, investors have to be thinking about what this means in light of the search for yield.”

Thailand’s baht surged 1 percent against the U.S. currency, breaching 29 per dollar for the first time since 1997, as demand for the nation’s bonds rose on Japan easing. The gains were “too fast” and the Bank of Thailand is ready to intervene if the currency’s moves are not consistent with fundamentals, Governor Prasarn Trairatvorakul said today.

European Yields

France’s 10-year bonds fell for the first time in six days. France’s 10-year yield climbed five basis points to 1.80 percent after falling to a record 1.709 percent yesterday. Austrian, Belgian, and Dutch bonds also slid and the yield on benchmark German bunds rose two basis points to 1.26 percent.

Copper rose 2.4 percent to $7,630 a metric ton and zinc gained 1.5 percent. China is the biggest buyer of the industrial metals. In Chile, the world’s largest copper producer, miners are holding their first nationwide strike for 24 hours to push for greater job security. West Texas Intermediate oil for May delivery increased 0.9 percent $94.20 a barrel for its biggest gain in two weeks.

Gold rose to a one-week high and silver jumped the most since January on speculation that central bankers in major economies will take more steps to bolster their economies, boosting demand for the metals as stores of value.

Gold futures for June delivery climbed 0.9 percent to $1,586.70 an ounce after touching $1,590.10, the highest for a most-active contract since April 2.