Bloomberg News

Stocks Rise as U.S. Treasuries Tumble; Commodities, Euro Climb

October 12, 2011

Oct. 12 (Bloomberg) -- Stocks climbed, briefly erasing the Dow Jones Industrial Average’s 2011 loss, while commodities gained and Treasuries slid as European leaders provided a road map of plans to tame the debt crisis and the Federal Reserve said it discussed further asset purchases to boost growth.

The Dow rose 102.55 points, or 0.9 percent, to 11,518.85 at the 4 p.m. close in New York and climbed as high as 11,625.3, briefly wiping out a 2011 drop that reached 8 percent last week. The Standard & Poor’s 500 Index gained 1 percent to 1,207.25, its highest close in almost a month, and indexes in France, Germany and Italy surged at least 2.2 percent. The 10-year Treasury note’s yield increased six basis points to 2.21 percent, copper added 3.1 percent and the euro strengthened more than 1 percent versus the dollar and yen.

The S&P 500 extended its rebound since Oct. 3 to almost 10 percent, the biggest gain over seven sessions since March 2009, as financial and industrial companies led gains. European Commission President Jose Barroso called for support for crisis- hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund. Lawmakers in Slovakia, the last euro nation to vote on an enhanced European bailout fund, reached an agreement to approve the mechanism.

“The situation in Europe is going to take a heroic effort,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co. in Boston, which manages $150 billion, said in a telephone interview. “At least for now, it seems that they are making steps in the right direction. The fact that there’s a road map is good. They are now starting to lay out a few more concrete steps.”

Earnings Season

Walt Disney Co., Bank of America Corp., American Express Co. and 3M Co. climbed at least 2.5 percent to help lead gains in 25 of 30 stocks in the Dow. The S&P 500 trimmed its 2011 loss 4 percent. PepsiCo Inc., the world’s largest snack-foods maker, advanced 2.9 percent after earnings increased on higher sales of Frito-Lay products. JPMorgan Chase & Co. climbed 2.8 percent and Google Inc. advanced 1 percent before reporting results tomorrow.

The rebound from a 13-month low on Oct. 3 has yet to bring the S&P 500 out of a trading range it’s been stuck in for more than two months. The benchmark index for U.S. stocks has fluctuated between 1,074.77 and 1,230.71 since Aug. 5 as investors remained cautious toward riskier assets amid speculation Greece will default on its debt.

‘Sustained Advance’

The 1,230 level is “where the rally was capped in late August,” Roger Volz, director of equities at BGC Partners LP in New York, said in a telephone interview. “If we can close above the previous major high, that would open the door for a sustained advance.”

The S&P GSCI has rebounded more than 8 percent after plunging 24 percent from its high for the year on April 8 to Oct. 4. The Dollar Index has slipped 3.2 percent from a nine- month high last week and the 10-year Treasury yield has increased from a record low of 1.67 percent in September.

The cost of protecting against losses on Morgan Stanley debt plunged to the lowest level in more than three weeks today amid improving confidence in Europe’s efforts to tame the debt crisis. Credit-default swaps on Morgan Stanley fell 45 basis points to a mid- price of 350 basis points as of 11:04 a.m. New York time, according to broker Phoenix Partners Group.

Default Protection

Credit-default swaps on Bank of America Corp. fell 28 to 335 and JPMorgan Chase & Co.’s eased 13 to 132. Contracts on Goldman Sachs Group Inc. declined 24 to 296, CMA data show. A benchmark gauge of U.S. corporate credit risk fell for a second day, reaching its lowest level in three weeks.

Coffee, copper, lead and silver increased at least 2 percent to lead gains in 16 of 24 commodities tracked by the S&P GSCI. Gold futures climbed to a two-week high, rising 1.3 percent to settle at $1,682.60 an ounce. Crude oil fell for the first time in six days, slipping 0.3 percent to $85.57 a barrel to snap its longest streak of gains this year, after the International Energy Agency cut its 2012 global demand forecast and the dollar weakened.

French banks advanced today, with BNP Paribas and Societe Generale SA up more than 5 percent, as Budget Minister Valerie Pecresse said the government is willing to recapitalize lenders unable to tap markets. Burberry Group Plc rose 3.5 percent as the U.K.’s largest luxury-goods maker reported sales that beat estimates. Fiat SpA and Daimler AG helped lead a rally in European automakers’ stocks, climbing at least 5.6 percent.

Treasury 30-year notes fell for a sixth session, pushing the yield 10 basis points higher to 3.20 percent. Growing confidence in European leaders’ efforts to fight the debt crisis reduced the haven appeal of the 10-year notes sold at today’s $21 billion auction.

Treasury Auction

The auction drew a 2.271 percent yield, the highest since July, compared with the average forecast of 2.231 percent in a Bloomberg News survey of eight of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.86, the lowest since November 2010.

Equities climbed to their highs of the session as the Fed said some officials last month wanted to keep further asset purchases as an option to boost the economy as policy makers saw “considerable uncertainty” that U.S. growth will pick up. Most participants favored giving additional information on the central bank’s goals and how they influence the Fed’s decisions, and most “saw advantages” in tying the Fed’s near-zero interest rates to more-specific developments in the economy, the Fed said in minutes of the Sept. 20-21 session, released today.

European Bonds

Italy’s 10-year bond yield rose 12 basis points to 5.74 percent, according to generic rates, and Spain’s note yield increased nine basis points to 5.12 percent. The yield on the Greek two-year note jumped 30 basis points to 73.50 percent after climbing as much as 253 points. The two-year Irish yield decreased 11 basis points to 7.41 percent, erasing earlier gains. German 30-year bonds fell, with the yield rising 12 basis points to 2.93 percent.

The euro strengthened 1.2 percent to $1.3794, the highest level since September 16, and gained 2 percent to 106.60 yen while the Dollar Index slid 0.8 percent. The pound jumped 1.2 percent to $1.5762 even after a report showed U.K. unemployment rose to 8.1 percent, the highest in 15 years, in the three months through August.

The MSCI Emerging Markets Index climbed 1.5 percent, bringing its six-day gain to 11 percent, the biggest rally since July 2009. Indonesia’s Jakarta Composite Index surged 3 percent after the central bank cut interest rates yesterday.

The Shanghai Composite Index rallied 3 percent, its biggest gain in a year, amid speculation that China will boost support for the equity market after valuations dropped to record-low levels. As U.S. lawmakers move closer than ever to punishing China for having an undervalued currency, trading in Hong Kong suggests the yuan is too strong. The U.S. Senate passed a bill on Oct. 11 that would allow sanctions on countries with misaligned exchange rates.

Yuan Moves

The currency sank as much as 1.1 percent to 6.5463 per dollar in the city yesterday, a record 2.4 percent discount to the prevailing Shanghai rate, data compiled by Bloomberg show. The yuan has traded at a discount for almost four weeks, undercutting the onshore rate by 1 percent on average, as Europe’s debt crisis spurs demand for dollars. The premium investors demand to hold China’s dollar-denominated debt instead of U.S. Treasuries widened 53 basis points in the past month to 279 basis points, based on a JPMorgan Chase & Co. index.

--With assistance from David Goodman, Claudia Carpenter, Michael Patterson, Andrew Rummer, Daniel Tilles and Paul Armstrong in London, Shiyin Chen in Singapore and Susanne Walker and Shannon D. Harrington in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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


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