Bloomberg News

U.S. Stocks Rise on Europe Debt Optimism; French Bonds Retreat

December 07, 2011

Dec. 6 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor’s 500 Index to a three-week high, and the euro erased losses amid optimism European leaders are planning larger efforts to fight the debt crisis. Treasuries fell.

The S&P 500 climbed 0.1 percent to close at 1,258.47 at 4 p.m. in New York after drifting between gains and losses for most of the day. French, Spanish and Austrian bonds fell after S&P said it may cut credit ratings on 15 euro nations and the European bailout fund. The euro was little changed at $1.34 after slumping as much as 0.5 percent. Cotton, silver and hogs rose more than 1 percent to lead the S&P GSCI Index of materials up 0.3 percent.

Stocks and the euro turned higher as the Financial Times reported that officials are negotiating a bigger rescue effort to present at this week’s European Union summit, including running two separate bailout funds simultaneously. European equity and bond markets closed before the report. Bloomberg News reported discussions about the combination of the temporary and permanent rescue funds on Oct. 20.

"The markets are looking for any signs of relief out of Europe," Keith Wirtz, who oversees $15.1 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. "Given how much the markets are geared right now, any positive headlines will likely give investors a Christmas rally to end the year. Make no mistake, today’s rally in stocks on the FT headline reflect the gearing of the markets."

Market Leaders

Raw-material producers, health-care and telephone companies led gains among seven of the 10 main industries in the S&P 500. General Electric Co., Pfizer Inc., Chevron Corp. and 3M Co. rose at least 1.5 percent to lead the Dow Jones Industrial Average up 52.3 points, or 0.4 percent, to 12,150.13. The Dow extended its 2011 advance to 5 percent and the S&P 500 ended the session with a gain of less than 0.1 percent for the year.

3M rose after saying revenue may increase as much as 6 percent next year amid a boost from acquisitions, while GE climbed as Sanford C. Bernstein & Co. raised its recommendation on the shares. Darden Restaurants Inc., operator of the Red Lobster chain, tumbled 12 percent after cutting its full-year sales and profit growth forecasts.

The yield on the 10-year U.S. Treasury note climbed four basis points to 2.08 percent, near the highest level since October. The dollar weakened against nine of 16 major peers.

U.S. equities fluctuated earlier as S&P said the European Financial Stability Facility, the region’s temporary bailout fund, may lose its top rating if any of the fund’s six guarantors are downgraded from AAA. Germany, France, the Netherlands, Finland, Austria and Luxembourg are the top-rated nations backing the rescue fund.

Ratings Warnings

S&P said yesterday it may reduce the credit ratings of the six nations, and other euro members, depending on the results of the EU leaders’summit on Dec. 9.

German Finance Minister Wolfgang Schaeuble said that S&P’s downgrade warning yesterday will help force Europe to ratchet up efforts to resolve the two-year old fiscal crisis. European Central Bank President Mario Draghi will probably cut the benchmark interest rate a quarter point to buoy the economy when policy makers meet Dec. 8, according to 58 economists in a Bloomberg survey.

‘Vicious Circle’

“These debt crises have become a vicious circle where people lose confidence because there’s too much debt. That drives up borrowing costs or yields, that makes it harder to service the debt, that decreases confidence,” Neel Kashkari, Pacific Investment Management Co.’s head of global equities, said today in an interview on “InBusiness With Margaret Brennan” on Bloomberg Television. “The world is waiting for Europe to come out with a definitive solution to end that vicious cycle.”

The yield on France’s 10-year bond jumped 11 basis points to 3.24 percent, with similar-maturity Spanish and Austrian debt increasing at least six points. Rates on debt issued by the bailout fund maturing in July 2016 increased eight points to 2.42 percent after dropping for six straight days.

The extra yield, or spread, investors demand to hold the French securities instead of bunds, Europe’s benchmark government securities, increased 12 basis points to 105 points. The Portuguese-German spread narrowed 15 basis points, while the yield on Ireland’s October 2020 security fell 18 basis points.

The cost of insuring against default on European sovereign debt rose for the first time in seven days, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbing four basis points to 324.

The Swiss franc weakened versus all 16 major peers, declining 0.6 percent against the euro and the dollar, after a report showed that consumer prices in the nation fell the most in more than two years last month, led by lower costs for imports, adding pressure on the Swiss National Bank to raise its franc ceiling to protect the economy.

Lower Rates

Australia’s dollar dropped 0.3 percent against the U.S. currency after the nation’s central bank reduced its benchmark interest rate for a second straight month as Europe’s debt crisis threatens to slow exports.

The Stoxx Europe 600 Index closed down 0.3 percent after dropping of as much as 0.8 percent. RWE AG, Germany’s second- largest utility, tumbled 7.2 percent after announcing a share sale to raise about 2.1 billion euros ($2.8 billion). Yara International ASA gained 7.2 percent as the maker of nitrogen fertilizer affirmed its policy of returning cash to shareholders.

Micex, Ruble Tumble

The MSCI Emerging Markets Index fell 1.2 percent, snapping a six-day, 10 percent rally. The Hang Seng China Enterprises Index slid 1.5 percent after Fitch Ratings said a Chinese property-price correction will lead to worsening loan portfolios while Nomura Holdings Inc. cut its estimate for China’s economic growth next year to 7.9 percent from 8.6 percent.

The Micex Index tumbled almost 4 percent and the ruble weakened against all 16 major peers as Interior Ministry troops patrolled Moscow amid anti-government protests. U.S. Secretary of State Hillary Clinton, at a gathering of the Organization for Security Cooperation in Europe today, called for an investigation into allegations of electoral fraud in Russian elections last weekend.

--With assistance from Claudia Carpenter, Mark Gilbert, Abigail Moses, Andrew Rummer, Daniel Tilles and Jason Webb in London. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net


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