Bloomberg News

Stocks, Oil Advance on Confidence Data; Treasuries Fluctuate

November 29, 2011

Nov. 29 (Bloomberg) -- Stocks and commodities rose for a second day as U.S. consumer confidence increased by the most since 2003 and European finance ministers discussed efforts to tame the region’s debt crisis. Treasuries pared losses.

The Standard & Poor’s 500 Index added 0.2 percent to 1,195.19 at 4 p.m. in New York, trimming its rally from 0.9 percent. The Stoxx Europe 600 Index rose 0.8 percent. The euro climbed 0.1 percent $1.3329 after earlier erasing a gain of as much as 0.9 percent. The S&P GSCI gauge of 24 commodities advanced 1.3 percent as oil approached $100 a barrel. Ten-year U.S. Treasury yields rose two basis points to 2 percent after dropping 1 point.

U.S. equities added to yesterday’s rally after the Conference Board’s sentiment gauge climbed to 56 from a revised 40.9 in October as consumers grew more optimistic about jobs and income prospects. Europe’s effort to expand its bailout fund to 1 trillion euros ($1.3 trillion) is falling short and finance ministers tonight will discuss channeling European Central Bank loans to struggling nations through the International Monetary Fund.

“The economic reports have shown that the U.S. has been insulated from all the noise coming out of Europe,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “Consumers are not really bothered by that, at least not yet.”

Rally Extended

The S&P 500 snapped a seven-day slump yesterday, rallying 2.9 percent for its largest gain in a month, after Thanksgiving- weekend retail sales rose to a record and speculation grew that European leaders would increase efforts to fight the region’s debt crisis.

Today’s gains were led by energy, utility and consumer staples companies. Hewlett-Packard Co., Home Depot Inc. and Exxon Mobil Corp. climbed at least 1.3 percent to pace gains in the Dow Jones Industrial Average.

AMR Corp., the parent of American Airlines, tumbled 79 percent after filing for bankruptcy as it failed to secure cost- cutting labor agreements. Corning Inc., the world’s largest maker of glass for flat-panel televisions, plunged 11 percent to lead a drop in technology shares after cutting its fourth- quarter earnings forecast because of the loss of a contract and lower glass prices.

Confidence Beats

The reading of 56 in the Conference Board’s confidence gauge topped the most optimistic economist forecast in a Bloomberg survey and compared with the median estimate of 44. The report was the third-strongest relative to expectations since at least 1999, Bespoke Investment Group LLC said in a note to clients today, and the S&P 500 has rallied on average 1.3 percent on days when the number beat the consensus forecast by 10 or more.

“What it may indicate is that the U.S. equity market has made its low for 2011 since major lows in the equity market do often coincide with lows in consumer confidence,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said in a note to clients.

The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined 0.3 percent. The S&P GSCI index extended yesterday’s 1.4 percent rally as wheat and natural gas climbed more than 2.9 percent to lead gains in 18 of 24 commodities.

Yellen, Lockhart

Federal Reserve Vice Chairman Janet Yellen said the central bank has leeway to spur the U.S. recovery and reduce unemployment by purchasing more assets and clarifying its plan to sustain record-low borrowing costs. Fed Bank of Atlanta President Dennis Lockhart said expanding securities purchases is unlikely to give a sufficient boost to U.S. growth, without ruling out the strategy or other easing options.

Oil climbed 1.6 percent to $99.79 a barrel and earlier topped $100 a barrel in New York as Iranian protesters broke into and vandalized the British Embassy’s compound in Tehran.

Among European stocks, Remy Cointreau jumped 2.9 percent after France’s second-biggest distiller predicted “a substantial increase” in full-year earnings. BASF SE and K+S AG pulled a gauge of chemical makers higher, rising more than 2 percent. IG Group Holdings Plc rallied 9.3 percent, the most since 2010.

Italy was again forced to sell bonds at rates exceeding 7 percent today, a level that led Greece, Portugal and Ireland to seek bailouts.

Italian Yields

Italy sold 3.5 billion euros in three-year debt, 2.5 billion euros of 2022 bonds and 1.5 billion euros in 2020 bonds. The 2014 note yielded 7.89 percent, the highest since 1996 for a three-year bond and up from 4.93 percent when similar-maturity debt was sold last month. Demand for the 2014 bond was 1.5 times the amount sold and the bid-to-cover for the 2022 bond was 1.34 times, both higher than Oct. 28 auctions.

“High yields are not a real surprise, given the recent developments in Italian yields,” Annalisa Piazza, a strategist at Newedge Group in London, wrote in a report. “Bid-cover was higher than at the previous auction at the end of October as very cheap valuations might have attracted some interest.”

The yield on Italian 10-year bonds increased less than one basis point to 7.24 percent after rising as high as 7.38 percent, while two-year yields slipped one basis point to 7.10 percent after increasing to as high as 7.37 percent earlier.

German 10-year bund yields increased three basis points to 2.33 percent, while yields on U.K. and French 10-year debt decreased. U.S. 30-year bond yields rose three points to 2.96 percent after earlier dropping below German counterparts for the first time since 2009.

IMF Role

Finance ministers tonight are holding an initial discussion on channeling ECB loans to cash-strapped euro nations through the International Monetary Fund, aiming to bring the central bank onto the front lines without violating its ban on direct lending to governments, said people familiar with the situation, who declined to be identified because the talks are at an early stage.

Luxembourg Finance Minister Luc Frieden said the European Financial Stability Facility alone won’t be able to solve the euro region’s debt crisis. The EFSF will need help from the IMF and the European Central bank, Frieden told reporters in Brussels today before a meeting of euro area finance chiefs.

The cost for European banks to fund in dollars rose to the highest level since October 2008 for a fifth day. The three- month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 158 basis points below the euro interbank offered rate, from minus 149 basis points yesterday. The gap has widened from as little as minus 8 basis points on May 4.

The MSCI Emerging Markets Index climbed 1 percent. Benchmark gauges for China, South Korea, Taiwan and Indonesia gained more than 1 percent, while indexes in Russia and India dropped. Egypt’s EGX-30 Index jumped 5.5 percent, the most since 2009 on a closing basis, after a peaceful first day of parliamentary elections.

--With assistance from Adria Cimino in Paris, Will Hadfield and Daniel Tilles in London, James G. Neuger in Brussels and Lorenzo Totaro in Rome. 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 Sao Paulo at rnazareth@bloomberg.net

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


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