Bloomberg News

U.S. Stocks Advance, Reversing Global Slump; Commodities Drop

June 27, 2011

June 27 (Bloomberg) -- U.S. stocks rose, rebounding from three days of losses and reversing a worldwide slump, as Microsoft Corp. led a rally in technology shares and banks gained on new rules to safeguard the global financial system. Commodities declined to the lowest level since January.

The Standard & Poor’s 500 Index climbed 0.9 percent to 1,280.10 at 4 p.m. in New York. The MSCI All-Country World Index of shares added 0.4 percent after falling as much as 0.4 percent. The S&P GSCI Index of 24 commodities lost 0.3 percent as hogs, silver and wheat dropped more than 2.6 percent. Bonds of Europe’s most-indebted nations fell, driving Portugal and Ireland’s 10-year yields up 30 and 13 basis points, respectively, to record highs.

“Evidence suggests that particularly the U.S. banks are in better position to reach those capital requirements,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $48 billion. “There’s a lot of anxiety about the Greece situation. The progress when dealing with the European debt crisis is slow.”

Global regulators said banks deemed too big to fail must hold as much as 2.5 percentage points in additional capital as part of efforts to prevent another financial crisis. Commodities plunged and Portuguese and Irish bonds fell as Greek lawmakers start a three-day debate to approve a 78 billion euro ($110 billion) austerity package. The nation’s creditors are headed toward an agreement to roll over 70 percent of their holdings into longer-maturity debt in an effort to prevent a default that may roil the euro region.

Technology Surges

Technology stocks in the S&P 500 increased 1.4 percent, the most among 10 groups in the index. Microsoft surged 3.7 percent, its biggest gain since Sept. 13. Amazon.com Inc. climbed 4.5 percent to its highest level in six weeks.

Spending on computers by companies and governments in the U.S. will grow 5.6 percent in 2011, about double the estimated increase for gross domestic product, according to International Data Corp. Since the S&P 500 bottomed on March 16, technology shares have posted the third-worst returns in the S&P 500 among the 10 industries.

“There probably was a bit more pessimism that was really merited, and some of that pessimism is coming out,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors, which manages $1 billion in Walnut Creek, California.

U.S. banks gained. Bank of America Corp. rose 3.1 percent, PNC Financial Services Group Inc. added 2.2 percent and Citigroup Inc. advanced 1 percent. Huntington Bancshares Inc. rallied 3.6 percent, the fourth-biggest gain in the S&P 500.

‘Less Onerous’

The new capital rules from the Basel Committee on Banking Supervision are “less onerous than had been feared,” said Scott Tapley, who helps oversee $2.5 billion at 1st Source Investment Advisors Inc. in South Bend, Indiana. “It makes it more likely that they can resume more normal-looking dividend payments sooner rather than later.”

Developing nations led losses earlier in equities. The MSCI Emerging Markets Index retreated 0.2 percent. Benchmark stock indexes for South Korea and Poland lost at least 0.7 percent. Measures for Russia and Taiwan slumped 0.4 percent.

Equities declined after the Bank for International Settlements said policy makers must raise interest rates to control inflation and may have to act faster than in the past. While policy makers in Asia and Latin America are already boosting borrowing costs to damp price pressures, rates remain near record lows in the world’s largest developed economies.

Credit-Default Swaps

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell 0.6 basis points to 242.5 as of 2:52 p.m. in London, after earlier reaching a record. Greek, Portuguese and Irish 10-year bonds declined, driving up the extra yield investors demand to hold the securities instead of benchmark German bunds.

Contracts tied to Greece declined 27.9 basis points to a mid-price of 2,086.3 basis points, signaling an 84 percent probability of default within five years, according to CMA.

This is “another week where all eyes will be on Greek politicians as they gather to debate the latest austerity package that’s needed to ensure that funds are made available to avoid a default within the next few weeks,” Gary Jenkins, head of fixed-income at Evolution Securities Ltd. in London, wrote in a client note. “Or at least, that’s the threat.”

Treasuries declined as speculation that Greek lawmakers will approve the austerity measures discouraged demand for a $35 billion auction of two-year notes. The securities drew a record low yield of 0.395 percent, compared with the average forecast of 0.386 percent in a Bloomberg News survey. Yields on the current two-year notes climbed six basis points to 0.39 percent. Yields on 10-year notes gained five basis points to 2.92 percent after falling to 2.84 percent, the lowest level since Dec. 1.

U.S. shares advanced even after American consumer spending unexpectedly stagnated in May. Purchases were little changed, the weakest outcome since June 2010, after a revised 0.3 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News called for a 0.1 percent gain.

--With assistance from Paul Armstrong in London and Cecile Vannucci, Whitney Kisling and Jeff Sutherland in New York. Editors: Jeff Sutherland, Nick Baker

To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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


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