Bloomberg News

Stocks Rally on Economic Data as Euro Erases Drop Versus Dollar

December 30, 2011

Dec. 29 (Bloomberg) -- U.S. stocks rose, restoring the yearly gain for the Standard & Poor’s 500 Index, as economic data signaled the U.S. is weathering Europe’s debt crisis. The euro erased an earlier loss versus the dollar and European shares gained. Treasuries rose.

The S&P 500 climbed 1.1 percent to close at 1,263.02 at 4 p.m. in New York, leaving it up 0.4 percent for the year, and the Dow Jones Industrial Average increased 135.63 points, or 1.1 percent, to 12,287.04. The euro added 0.2 percent to $1.2964, after falling as much as 0.6 percent, and trimmed a 0.8 percent slide versus the yen to 0.3 percent. Italy’s 10-year bond yield rose three basis points to 7.03 percent after climbing 13 basis points earlier. Ten-year U.S. Treasury rates lost two basis points to 1.90 percent.

U.S. equities extended early gains as an index of pending U.S. home sales rose more than economists forecast, while other reports showed stronger-than-projected growth in American business activity and a drop in jobless claims over the past month to a three-year low. European stocks fell earlier, while the euro touched a decade low against the yen and a 15-month low versus the dollar, after Italy raised less than its maximum target at a debt auction.

“There has been a much better tone in the U.S.,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “We’re optimistic that corporate earnings can continue to be strong and that will be a driver of the market.”

Financials Lead

Financial stocks in the S&P 500 climbed 1.6 percent as a group to lead an advance in all 10 of the main industries as Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. advanced more than 2.3 percent to pace gains. The group of 80 banks, insurers and investment firms has tumbled 18 percent this year for the worst performance among the 10 industries.

M/I Homes Inc. and KB Home rose more than 6 percent to lead gains in all 12 companies in an S&P gauge of homebuilders. The National Association of Realtors’ index of pending home sales increased 7.3 percent to the highest level since April 2010. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

The four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department figures showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than-forecast 15,000 to 381,000.

Economic Data

Other data showed business activity in the U.S. expanded more than forecast in December, prompting companies to boost employment. The Institute for Supply Management-Chicago Inc.’s business barometer was 62.5. Readings above 50 signal growth. Economists forecast the gauge would fall to 61, according to the median of estimates in a survey.

Yields on two-year Treasuries were also little changed, trading at 0.27 percent, while 30-year bond yields lost two basis points to 2.90 percent. U.S. Treasuries are up 9.6 percent in 2011, headed for their best year since 2008, according to Bank of America-Merrill Lynch indexes. The ten-year yield reached a record low of 1.67 percent on Sept. 23.

The S&P GSCI Index of commodities was little changed as natural gas, cocoa and lean hogs fell at least 1.3 percent to lead losses among 13 of 24 materials, while lead, silver and sugar climbed more than 1.6 percent each.

Gold futures fell for a sixth straight session, the longest slump since March 2009, with a 1.5 percent drop to $1,540.90. Gold, which is poised to complete its 11th consecutive annual gain, is on the brink of a bear market. Gold futures have declined 19 percent from a record close of $1,891.90 in August, or 1 percentage point away from a bear-market plunge of 20 percent.

‘Constructive on Gold’

“We’re still constructive on gold, as a hedge, a store value,” Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC in Philadelphia, told Bloomberg Television. “If investors continue to gravitate toward it as a currency in lieu of other fiat currencies that are in the process of being debased by many central governments around the world.”

Oil in New York gained 0.3 percent to $99.65 a barrel. Prices have gained 9.1 percent this year.

The euro weakened against 11 of 16 major peers, losing at least 0.3 percent versus the Australian dollar, Norwegian krone and South African rand. The dollar weakened against 13 of 16 major peers.

Euro Slump

The shared European currency is the worst performer among 10 developed-nation currencies this year, declining 1.7 percent, according to Bloomberg Correlation-Weighted Currency Indexes. The euro today touched its lowest level since 2002 against the index. The dollar has advanced 1.5 percent and the yen has gained 4.8 percent.

Leaders in the European parliament have proposed including a “road map” for common euro-region bonds in a new European treaty on fiscal discipline, the Financial Times reported, citing amendments submitted to the treaty’s drafters. The amendments, which would not create common bonds immediately, would focus on creating conditions where Germany may support the plan, the newspaper reported on its website.

The Stoxx Europe 600 Index increased 0.9 percent today as real-estate firms, utilities and chemical companies led gains. The Stoxx 600 has dropped 12 percent this year, compared with an 18 percent slump in the MSCI Asia Pacific Index. The S&P 500 had drifted above and below its 2010 closing level since the end of October and the Dow has gained 6.1 percent this year, with both in the top 10 best-performing gauges this year among 91 global indexes tracked by Bloomberg.

Emerging Markets

The MSCI Emerging Markets Index rose 0.1 percent after falling for three straight day. Russia’s Micex climbed 0.3 percent. Indian stocks dropped for a third day, with the Sensex sliding 1.2 percent.

China’s Shanghai Composite Index advanced 0.2 percent, a second straight day of gains that trimmed its yearly decline to 23 percent. China’s central bank may cut banks’ reserve requirements after New Year’s Day, according to a commentary in the China Securities Journal today. Reserve ratios were last cut by 50 basis points to 21 percent with effect from Dec. 5.

China’s central bank raised interest rates three times this year to cool inflation and exports to Europe slowed because of the debt crisis.

--With assistance from Shiyin Chen in Singapore, Mariko Ishikawa in Tokyo, Paul Dobson, Claudia Carpenter, Ash Kumar, Andrew Rummer and Nicholas Larkin in London, Robert Willis in Washington and Brett Bevelacqua and Catarina Saraiva in New York. Editors: Michael P. Regan, Jeff Sutherland

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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