Bloomberg News

Stocks in U.S. Rise as Energy Shares Rally; Treasuries Advance

December 16, 2011

Dec. 16 (Bloomberg) -- U.S. stocks advanced, paring a weekly loss, as gains in energy and financial companies helped the market overcome Fitch Ratings lowering France’s outlook and putting Spain and Italy under review. Treasuries advanced, and the dollar trimmed losses against the euro.

The Standard & Poor’s 500 Index added 0.3 percent to 1,219.66 at 4 p.m. New York time after advancing as much as 1.3 percent. It dropped 2.8 percent this week. The Dow Jones Industrial Average lost 2.42 points, or less than 0.1 percent, to 11,866.39 today. Yields on 10-year Treasury notes decreased six basis points to 1.85 percent. The euro rose 0.2 percent to $1.3035 after strengthening as much as 0.5 percent to $1.3084.

Optimism over the European crisis fizzled after Fitch cut France’s ratings outlook to negative and said it may downgrade Spain, Italy, Belgium, Slovenia, Ireland and Cyprus by the end of January. After the close of trading, Moody’s Investors Service reduced Belgium’s grade. The S&P 500 has lost 3 percent since Dec. 31 after being up for the year on nine days since Oct. 27. The index is trading below its 200- and 50-day averages, a bearish sign to some traders.

“We’re seeing a market in which there’s very little long- term investor interest,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “The problem is that sort of feeds the battlefield to people who are just trying to trade the market as opposed to invest in companies. It’s been much more of a trading market than a measure of people’s willingness to invest in the long run.”

Fitch said a “comprehensive” solution to the euro zone’s crisis is “technically and politically beyond reach.”

Juncker, Bundesbank

Gains in stocks were propelled earlier by optimism the European Union will meet a Dec. 19 deadline for funding a crisis-fighting package. Luxembourg’s Jean-Claude Juncker, who leads a group of finance ministers from the region, said the EU should meet the goal for arranging loans to the International Monetary Fund.

An hour after Juncker’s comments, the Bundesbank said it won’t rush to a decision on the loans, which are to be provided by EU national central banks.

“Going into a weekend, people take money off the table for fear of not knowing what’s going to happen, chiefly in Europe,” Peter Tuz, who helps manage about $800 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a telephone interview.

VIX Drops

Stocks rallied as the options-market indicator known as the VIX showed investors are paying less for protection from equity losses. The Chicago Board Options Exchange Volatility Index, or VIX, dropped to 24.29, or 5.5 percent below its 200-day average. The difference is the widest since July 8, before S&P cut the U.S. government’s credit rating and yields on European government debt surged, roiling markets and driving the VIX to a two-year high of 48.

Energy stocks gained the most among 10 S&P 500 industries, climbing 0.9 percent. Banks jumped 1.2 percent as a group. Home Depot Inc. advanced 2.5 percent to lead gains in the Dow, which erased a 99.37-point rally. Dow losses were led by International Business Machines Corp. and United Technologies Corp., which slipped at least 1.5 percent.

Spanish and Italian notes rose, leading gains in euro-area debt, on speculation banks bought the securities to use as collateral when the European Central Bank starts offering three- year loans next week.

Spain’s two-year yields dropped to a four-month low of 3.10 percent after the nation sold almost double its initial maximum target of securities at an auction yesterday. Italian notes extended a third weekly gain, with two-year yields falling to 5.34 percent, as Prime Minister Mario Monti’s government won a confidence vote. French and Belgian bonds advanced.

Copper futures gained 2 percent, the most in two weeks. Crude oil futures slumped 0.4 percent. The fuel dropped 5.9 percent this week, the most since the period ended Sept. 23.

--With assistance from Jeff Kearns in New York and Emma Charlton and Keith Jenkins in London. Editors: Nick Baker, Jeff Sutherland

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

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


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