Bloomberg News

Stocks Rally on China Output, U.S. Retail Data; Treasuries Drop

June 14, 2011

June 14 (Bloomberg) -- Stocks surged, sending the Standard & Poor’s 500 Index to its biggest gain in almost two months, as higher-than-forecast Chinese industrial output and American retail sales eased concern about a global economic slowdown. Treasuries tumbled and the dollar fell, while commodities rose.

The Standard & Poor’s 500 Index rallied 1.3 percent to 1,287.87 at 4 p.m. in New York, the biggest gain on a closing basis since April 20. Ten-year Treasury yields surged 12 basis points, the most since January, to 3.10 percent and the Dollar Index lost 0.2 percent. Copper led the S&P GSCI Index up 0.9 percent and oil rebounded from a one-month low. Greek bonds slid as European officials met to discuss the nation’s debt crisis.

Stocks rallied from Shanghai to New York after China’s industrial production rose 13.3 percent in May, while U.S. retail sales decreased at less than half the median forecast of economists in a sign that consumers were overcoming elevated gasoline costs. The S&P 500 climbed for a second day after sliding for six straight weeks and closing at an almost three- month low on June 10.

“Investors have been looking for some positive news to encourage risk-taking, and we’re finally seeing a bit of that,” said Joseph Tanious, New York-based market strategist at J.P. Morgan Asset Management, which oversees $1.9 trillion in assets. “We’ve seen some bright spots in both China and the U.S. today, which are helping drive this rally forward.”

Retail Sales

The S&P 500’s gain was led by commodity producers, industrial and consumer companies, with all 10 of the main industry groups advancing. Sales at retailers fell 0.2 percent in May, less than the 0.5 percent decline in a Bloomberg survey. Excluding automobiles, gasoline and building materials, which are the figures used to calculate gross domestic product, sales climbed 0.2 percent.

Other data showed wholesale costs in the U.S. increased more than forecast in May, led by higher prices for fuel, apparel and textiles. The 0.2 percent increase in the producer- price index reported by the Labor Department compares with the 0.1 percent median estimate of economists. The so-called core measure, which excludes volatile food and energy costs, increased 0.2 percent.

Home Depot Inc., Caterpillar Inc. and Boeing Co. climbed at least 2.3 percent to lead gains in 24 of 30 stocks in the Dow Jones Industrial Average, which surged 123.14 points, or 1 percent, to 12,076.11.

Best Buy Co., the world’s largest consumer electronics retailer, rallied 4.6 percent after reporting profit that exceeded analysts’ forecasts, helped by rising demand for smartphones and tablet computers. J.C. Penney Co. soared 17 percent, the most in more than 10 years, after naming Ron Johnson, Apple Inc.’s retail head, as its chief executive officer.

$1 Trillion Slide

More than $1 trillion was erased from U.S. equity markets from the S&P 500’s peak on April 29 through yesterday, leaving the measure trading at about 12.8 times its companies’ estimate earnings for 2011. That’s the cheapest valuation since August. The index is still up 2.8 percent for 2011.

The two-year Treasury yield increased four basis points, or 0.04 percentage point, to 0.44 percent. Bonds remained lower after Federal Reserve Chairman Ben S. Bernanke said the U.S. debt ceiling shouldn’t be used as a bargaining chip to force budget cuts.

Default Swaps Retreat

The cost of protecting U.S. corporate bonds from default fell the most in almost three months. The Markit CDX North America Investment Grade Index decreased 2.75 basis points from the highest level since Oct. 19 to a mid-price of 96.75 basis points, according to index administrator Markit Group Ltd. Investors use the benchmark to hedge against losses on corporate debt or to speculate on creditworthiness.

Copper climbed 3 percent to $4.1735 a pound in New York, rebounding from a four-day slump. China is the biggest buyer of industrial metals. Oil increased 2.1 percent, the most in almost four weeks, to $99.37 a barrel. Seventeen of the 24 materials tracked by the S&P GSCI Index advanced, while corn, wheat, natural gas and soybeans dropped at least 0.9 percent for the biggest declines.

The Stoxx Europe 600 Index climbed 0.8 percent as almost six stocks gained for each that fell. Solarworld AG and Q-Cells SE advanced at least 4 percent after Handelsblatt reported that LDK Solar Co., a Chinese maker of solar panels, is seeking acquisitions in Germany. Ericsson AB advanced 1.7 percent after agreeing to buy Telcordia for $1.15 billion. Benchmark indexes in Spain, Italy, Germany and France advanced at least 1.4 percent.

China ‘Fear’ Eased

The Shanghai Composite Index rallied 1.1 percent, its biggest gain of the month. China’s industrial production topped the 13.1 percent median estimate in a Bloomberg survey, while fixed-asset investment quickened and inflation accelerated to the fastest pace in almost three years. Equities pared some gains after the People’s Bank of China said it will raise the reserve-requirement ratio for banks by 50 basis points.

“Fear about Chinese statistics was such that outcomes about in line with economists’ expectations prompted equity and commodity buying and U.S. Treasury futures selling,” analysts led by Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London, wrote today in a note.

The MSCI Emerging Markets Index climbed 0.9 percent, poised for the biggest gain since May 31. Taiwan’s Taiex Index rose 1.3 percent and South Korea’s Kospi rallied 1.4 percent.

Division Over Greece

Greek bonds slid as European finance chiefs were divided on how to involve private investors in a second bailout for Greece and stave off the euro area’s first sovereign default without running afoul of the European Central Bank.

The extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds rose to a record 1,446 basis points, or 14.46 percentage points. Greece’s borrowing costs rose as it sold 1.625 billion euros of 26-week bills, mostly to domestic buyers. S&P downgraded the country’s rating yesterday three levels to CCC, the world’s lowest credit rating, saying nation is “increasingly likely” to face a debt restructuring.

Spain’s two-year note yield slipped two basis points to 3.41 percent. The nation sold 5.4 billion euros of 12- and 18- month bills, compared with a maximum target of 5.5 billion euros set by the Treasury. Its 12-month borrowing costs rose to 2.695 percent from 2.546 percent in May. Italy auctioned 3.5 billion euros of five-year bonds at 3.9 percent, up from 3.77 percent last month, while Belgium raised 3.39 billion euros from an auction of bonds, the most in 11 months, as yields declined.

The cost of insuring European corporate bonds fell, after surging to a three-month high. The Markit iTraxx Crossover Index of credit-default swaps on 40 mostly junk-rated companies dropped 10.4 basis points to 394, after climbing to the highest since March 17 yesterday.

The Swiss franc weakened against all 16 major peers, losing 1 percent against the dollar and 1.2 percent versus the euro. The Swiss government lowered its forecast for 2012 economic growth and said a further appreciation of the franc poses risks to the outlook.

--With assistance from Julie Cruz in Frankfurt, Paul Armstrong, Claudia Carpenter, Paul Dobson, Michael Patterson, Andrew Rummer and Dan Tilles in London. Editors: Michael P. Regan, Jeff Sutherland

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To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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