Bloomberg News

Stocks, Oil Gain as Greece Passes Austerity Plan; Dollar Falls

June 29, 2011

June 29 (Bloomberg) -- Stocks rose, sending the Standard & Poor’s 500 Index to its biggest three-day gain since March, and Treasuries fell after Greece passed austerity measures and banks rallied as the Federal Reserve relaxed restrictions on debit- card transaction fees. Oil surged, and the dollar dropped.

The Standard & Poor’s 500 Index added 0.8 percent at 4 p.m. in New York, giving it a 3.1 percent weekly gain. The MSCI All- Country World Index of shares in 45 nations advanced 1.3 percent. Treasury 10-year notes fell the most over a three-day stretch since November, with yields rising to 3.12 percent. Crude jumped 2 percent. The Dollar Index fell 0.6 percent.

Greek Prime Minister George Papandreou clinched enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default. Financial, raw-material and energy companies had the biggest gains among 10 groups in the S&P 500 as investors bought equities tied to economic growth.

“You’ve cleared an important hurdle,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., which oversees $3.65 trillion as the world’s largest asset manager. “It’s one little step for Greece, yet an important step.”

The S&P 500 has fallen 2.8 percent in June, and headed for the second straight monthly loss, amid concern about the European debt crisis and weaker-than-expected economic data. The index is still up 4 percent in 2011 on government stimulus measures and better-than-estimated profits.

Extending Gains

Today, financial stocks in the S&P 500 trimmed gains in the early afternoon, only to surge after the Fed’s decision on fees. Visa Inc. and MasterCard Inc., the world’s biggest consumer- payment networks, surged 15 percent and 11 percent, respectively. Those were the biggest gains since 2008 and 2009.

Bank of America Corp., the biggest U.S. bank, climbed 3 percent after agreeing to pay $8.5 billion to resolve claims made by bondholders including BlackRock Inc. over soured mortgages. Monsanto Co., the world’s largest seed company, rose 5 percent after raising its annual profit forecast and posting third-quarter earnings that topped analysts’ estimates on higher sales of Roundup weed killer and genetically modified seeds.

Treasury 10-year notes fell the most over a three-day stretch since November after a third government note auction this week drew poor demand and Greek passage of the austerity bill reduced the risk of default.

Fed Program Ends

Yields on seven-year notes rose to the highest level this month, 0.50 percent, after the $29 billion sale of the securities drew the lowest participation in more than two years from a class of investors including foreign central banks. Yields on two-year notes touched 0.50 percent a day before the Fed’s $600 billion bond-purchase program concludes.

The S&P GSCI Index of 24 commodities jumped 2.1 percent, with energy-related materials accounting for four of the index’s five biggest gains.

Crude oil rose in the biggest two-day rally in seven weeks in New York, after the U.S. government reported that supplies dropped almost three times as much as expected. Oil has gained 4.1 percent since June 23, when it dropped 4.6 percent after the International Energy Agency announced the release of 60 million barrels from strategic reserves.

The dollar declined against 15 of 16 major counterparts, with the euro rising 0.5 percent to $1.4435 for its third straight advance.

Government bonds issued by Greece gained. The yield on the two-year note tumbled 123 basis points to 27.31 percent, with the 10-year yield sliding 17 basis points to 16.29 percent.

More Funds

After gaining 155 votes in the 300-seat Greek Parliament, Papandreou is on track to secure a bill setting out the strategy for a 78 billion euro ($112 billion) package of budget cuts and asset sales that is the condition for further rescue funds. Attention now shifts to a vote tomorrow for authorization to implement the plan.

Greece “doesn’t just face an illiquidity problem, but an eventual insolvency problem,” Mickey Levy, chief economist at Bank of America in New York, said in a Bloomberg Television interview today. “What this vote does is it buys them time, but

The extra yield investors demand to hold Greek 10-year bonds instead of bonds fell 22 basis points to 1,330 basis points, or 13.30 percentage points. The Spanish 10-year note yield declined six basis points, with the equivalent-maturity Portuguese yield tumbling 41 basis points.

--With assistance from Maria Petrakis, Natalie Weeks and Eleni Chrepa in Athens, Paul Dobson in London and Whitney Kisling, Jeff Kearns, Inyoung Hwang, Cecile Vannucci, Charlie Zuza, Susanne Walker and Daniel Kruger 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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