Bloomberg News

U.S. Stocks Advance as Concern About Greek Debt Default Eases

June 21, 2011

June 21 (Bloomberg) -- U.S. stocks advanced, sending the Standard & Poor’s 500 Index higher for a fourth straight day, as concern about Greece’s debt crisis eased.

Wells Fargo & Co. and Citigroup Inc. rose at least 1.8 percent, following a rally in European banks, as Greece’s government faces a confidence vote that may determine whether it avoids a default. Caterpillar Inc., Alcoa Inc. and Hewlett- Packard Co. added more than 0.8 percent, pacing gains among companies most-tied to economic growth. Best Buy Co. climbed 2.7 percent as the largest consumer electronics retailer set a $5 billion share repurchase plan and raised its quarterly dividend.

The S&P 500 rose 1.3 percent to 1,295.52 at 4 p.m. in New York. The Dow Jones Industrial Average added 109.63 points, or 0.9 percent, to 12,190.01. The Nasdaq Composite Index gained 2.2 percent to 2,687.26, reversing its 2011 drop. The Russell 2000 Index of small companies increased 2.3 percent to 806.37.

“We expect the confidence vote in Greece to go well,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which oversees $354.9 billion. “We’re starting to put some of the major building blocks into place to resolve the Greece situation. If you can stop the bleeding, that stops the dominoes from falling. That begins to take some of the contagion risk off the table.”

The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, lost 5.7 percent to 18.86. The S&P 500 has risen for four days after a six-week slump brought it within half a point of erasing its 2011 gain on June 16 and made it the cheapest in almost a year compared with forecast earnings.

Confidence Vote

Stocks rose across the globe amid growing investor optimism that today’s vote of confidence in Greek Prime Minister George Papandreou is likely to determine how soon the nation can win international aid to shore up its finances.

Benchmark gauges and a measure of homebuilders in S&P indexes rallied even as a report showed that sales of existing U.S. homes fell in May to the lowest level in six months. Purchases of existing homes fell 3.8 percent to a 4.81 million annual pace last month, in line with the 4.8 million median estimate in a Bloomberg News survey of economists, data from the National Association of Realtors showed.

The slow pace of recovery should allow the Federal Reserve to delay the central bank’s exit from record stimulus, economists said in a survey. Officials are scheduled to meet in Washington today and tomorrow to determine the course of policy.

Fed’s Balance Sheet

Seventy-nine percent of 58 economists expect Bernanke to sustain the Fed balance sheet at current levels until October or later, compared with 52 percent who held that view before the Fed’s last policy meeting in April, according to a Bloomberg News survey conducted last week. Ninety percent of those surveyed predict the Fed will wait until the fourth quarter before dropping its pledge to hold interest rates low for an “extended period.”

“They want to keep monetary policy as easy as possible,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “In Europe, they’ve started to raise interest rates, and that is really hurting their economies.” The Federal Reserve “recognizes that is the wrong medicine to give at this point.”

Fitch Ratings said U.S. lawmakers are “very likely” to raise the debt ceiling limit before Aug. 2, even as it reiterated that failure to do so would result in the country being placed on rating watch negative.

Rating Watch Negative

“The U.S. Treasury is saying that if the debt ceiling is not raised by Aug. 2, then they can’t guarantee that they will remain current on their obligations,” Andrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team, said in an interview in Singapore today. “If the debt ceiling has not been raised by then, then we would put the U.S. sovereign ratings on rating watch negative. We think it’s very likely that the debt ceiling will be raised in good time.”

Treasury Secretary Timothy F. Geithner has warned that a failure to increase the $14.3 trillion debt ceiling by Aug. 2, the date he projects borrowing authority would be exhausted, may have catastrophic effects on the U.S. economy by sharply raising borrowing costs. Republicans are using the debt-ceiling talks to press for cuts in government spending. Fitch rates U.S. sovereign debt AAA, the highest investment grade.

Wells Fargo, the largest U.S. home lender, added 1.9 percent to $27.46. Citigroup rose 3 percent to $39.31.

Regulatory Claims

JPMorgan Chase & Co. pared a gain of as much as 1.9 percent, rising 1.1 percent to $40.91. The only Wall Street bank to remain profitable throughout the financial crisis agreed to pay $153.6 million to resolve U.S. regulatory claims over its role in designing and selling a product linked to risky mortgages as the housing market unraveled in 2007.

The Morgan Stanley Cyclical Index of companies most- dependent on economic activity gained 2.5 percent as 29 of its 30 stocks rose. The Dow Jones Transportation Average of 20 stocks increased 1.9 percent.

Caterpillar, the world’s largest maker of construction equipment, advanced 3.3 percent to $101.39. Alcoa climbed 4 percent to $15.37. Hewlett-Packard gained 0.9 percent to $35.30.

Best Buy rose 2.7 percent to $32.38. The buyback plan replaces the $5.5 billion program announced in 2007, which had $800 million left as of May 28, the Richfield, Minnesota-based company said today in a statement. The quarterly payout will be raised to 16 cents a share.

Bed Bath & Beyond Inc. advanced 2.8 percent to $54.06. Deutsche Bank AG said first-quarter earnings at the home furnishings retailer may beat estimates. Deutsche Bank estimated 60 cents a share for first-quarter earnings, which are scheduled to be released tomorrow.

Consumer Companies

A gauge of consumer companies that sell necessities slid 0.1 percent, the only decline within 10 S&P 500 groups.

Walgreen Co. slumped 4.2 percent to $43.28. The largest U.S. drugstore chain said it failed to renew a contract worth more than $5 billion in annual sales with drug-benefits manager Express Scripts Inc. after negotiations fell apart. The agreement will end as of Jan. 1.

The S&P 500 rebounded after touching its 200-day moving average last week, a sign that the market’s decline from an April peak may be limited, analysts who study charts to make predictions said. The benchmark index for U.S. equities fell to as low as 1,258.07 on June 16, 0.17 point above its average level of 1,257.90 in the previous 200 days, before recouping the loss and ending the day higher.

The 200-day moving average “is a pretty significant support level,” as it’s close to the S&P 500’s low for the year in March and to the closing level at the end of 2010, Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, said in an interview. “There could be some potential buying here,” he said. “We’re encouraged the market held pretty well. Longer term, the uptrend is still in place.”

--With assistance from Lu Wang and Joanna Ossinger in New York. Editors: Joanna Ossinger, Michael Regan

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Cecile Vannucci in New York at cvannucci1@bloomberg.net

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


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