Bloomberg News

U.S. Stocks Climb on Italy Optimism, Economy; Euro Pares Losses

November 16, 2011

Nov. 15 (Bloomberg) -- U.S. stocks gained amid speculation that Italian Prime Minister-designate Mario Monti will form a new government to battle the debt crisis, while growth in retail sales bolstered optimism in the economy. The euro pared losses and Treasuries erased their advance.

The Standard & Poor’s 500 Index added 0.6 percent to 1,259.62 at 2:43 p.m. in New York after losing as much as 0.6 percent. The euro slipped 0.7 percent to $1.3540, trimming a 1 percent drop. Italian 10-year yields topped 7 percent and rates on French, Belgian, Spanish and Austrian debt rose to euro-era records above German bunds. Ten-year U.S. Treasury yields were little changed at 2.06 percent after dropping seven points earlier. Oil rose 1.3 percent to $99.42 a barrel.

Monti said after European markets closed that he is convinced Italy can overcome the crisis and he’ll meet with President Giorgio Napolitano tomorrow to present his Cabinet. The Commerce Department reported a 0.5 percent gain in retail sales and the Federal Reserve Bank of New York’s general economic index showed growth for the first time since May. Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said the economy will rebound “faster than people think.”

Early losses in stocks came as borrowing costs rose at an auction of Spanish debt and and Monti met resistance yesterday in forming a Cabinet.

Technology, Financial Shares

Gauges of technology and financial shares rose more than 0.8 percent, erasing earlier declines, to lead gains among the nine of the 10 main industries in the S&P 500. Apple Inc. rose 2.3 percent and JPMorgan Chase & Co. climbed 1.2 percent to pace the advance.

The S&P 500 rallied 14 percent from its low for the year on Oct. 3 through yesterday as improving earnings and better-than- estimated economic data eased concern that Europe’s crisis will drag the world’s largest economy into a recession.

Net income rose 15 percent on an 11 percent increase in sales for the 437 companies in the S&P 500 that reported results since Oct. 11, data compiled by Bloomberg show. Per-share earnings beat estimates at 73 percent of the companies.

The Citigroup Economic Surprise Index for the U.S. rose yesterday to 44.6, the highest level since April 1. The gauge measures whether data is beating or trailing economists’ estimates and has increased from a more-than two-year low of minus 117.2 on June 3.

‘Snap Back’

“I don’t think that we can conclude that this slowdown is secular rather than cyclical change,” Blankfein said at an investor conference hosted by Bank of America Corp.’s Merrill Lynch unit. “The world will snap back and it will be a surprise and it will be faster than people think.”

Federal Reserve Bank of Chicago President Charles Evans, speaking to the Council on Foreign Relations in New York, said he is calling for “increasing amounts of policy accommodation” to reduce a 9 percent jobless rate. St. Louis Fed President James Bullard said in a speech that current policy is appropriate and central bankers should think twice before deciding on further large-scale purchases of securities.

Among European stocks, Finmeccanica SpA sank 20 percent on plans to sell 1 billion euros ($1.4 billion) in assets after predicting a loss for this year. UniCredit SpA slid 4.5 percent as banks in the Stoxx Europe 600 Index sank more than 2 percent as a group. Cable & Wireless Worldwide Plc plunged 26 percent as the company suspended future dividend payments and named a new chief executive officer.

Default Swaps Surge

Italian, Spanish and Frenchcredit-default swaps surged to records as investors shunned the weakest government bonds. Swaps on Italy jumped 32 basis points to 594 and Spain climbed 24 to 481. France rose 19 basis points to 233 and Belgium increased 21 basis points to 343. An increase signals worsening perceptions of credit quality.

European Union lawmakers backed a proposed short-selling law that paves the way for an optional ban on naked credit- default swaps tied to sovereign debt. The legislation, which would also curb so-called naked short selling of stocks and government bonds, was approved by the European Parliament at a meeting in Strasbourg, France, today. A CDS is considered “naked” when an investor buys the swap without being at risk of suffering losses from a default.

EU Economic Data

The EU’s gross domestic product increased 0.2 percent from the previous three months, when it rose at the same pace, according to EU data. That matched the median forecast of 39 economists surveyed by Bloomberg.

The cost for European banks to fund in dollars rose to a three-year high. The three-month cross-currency basis swap was at 117 basis points below the euro interbank offered rate, from minus 113 yesterday, the most expensive funding level since December 2008, data compiled by Bloomberg show.

The London interbank offered rate, or Libor, for three- month dollar loans climbed for an eleventh day to 0.466 percent from 0.461 percent, according to data from the British Bankers’ Association. That’s the highest level since July 29, 2010.

The euro dropped 0.7 percent against the yen, with the Japanese currency appreciating against all 16 most-traded peers monitored by Bloomberg.

Spain sold 3.16 billion euros ($4.3 billion) of bills at a higher rate and Mario Monti, Italy’s premier-in-waiting, faced political resistance on forming a Cabinet during talks in Rome yesterday.

Spain’s Debt Auction

The yield on Spain’s 10-year bond rose 23 basis points to 6.34 percent and the two-year yield climbed 31 basis points to 5.31 percent. The average yield on the country’s 12-month debt was 5.022 percent at auction, compared with 3.608 percent when securities of the same maturity were sold on Oct. 18. The yield on the 18-month bills was 5.159 percent, up from 3.801 last month.

The extra yield investors demand to hold French 10-year bonds instead of German bunds increased to as much as 191 basis points, the most since the common European currency was started in 1999. The Spanish-German spread widened as much as 458 basis, also a euro-era high, with the Belgian-German 10-year gap reaching 318, topping 300 basis points for the first time since Bloomberg began collecting the data in 1993.

The MSCI Emerging Markets Index fell 0.9 percent, the first decline in three days. South Africa’s rand led currencies lower, weakening 2.1 percent against the dollar. The Czech PX Index slipped 1.7 percent after a report showed growth stalled in the third quarter for the first time since 2009. South Korea’s Kospi Index retreated 0.9 percent and India’s Sensex Index sank 1.4 percent.

--With assistance from Stephen Kirkland and David Goodman in London, Caroline Salas Gage and Christine Harper in New York and Steve Matthews in Atlanta. Editors: Michael P. Regan, Nick Baker

To contact the reporters on this story: Michael P. Regan in New York at mregan12@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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