Bloomberg News

Stocks Erase Early Drop as 10-Year Treasury Yield Touches 2%

January 09, 2012

Jan. 4 (Bloomberg) -- U.S. stocks rose, erasing an early drop, as improving sales at retailers and carmakers helped bolster confidence in the economy. Treasury 10-year yields touched 2 percent for the first time in a week.

The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,277.30 at 4 p.m. in New York after losing 0.7 percent earlier. The Dow Jones Industrial Average climbed 21.04 points, or 0.2 percent, to 12,418.42. Ten-year Treasury yields added as much as six basis points to 2.01 percent before trading at 1.98 percent. The S&P GSCI Index of commodities added 0.5 percent as natural gas and heating oil rose at least 1.9 percent and crude jumped to the highest since May. The dollar climbed versus 13 of 16 major peers. Banks led European stocks lower.

The S&P 500 added to yesterday’s 1.6 percent rally as Ford Motor Co. jumped after December sales beat estimates to help U.S. carmakers cap their best year since 2008, while the International Council of Shopping Centers increased its estimate for last month’s same-store sales. U.S. equities followed European shares lower earlier as UniCredit SpA’s plan to sell shares fueled concern European banks need to raise capital to weather the debt crisis.

“We started the day with a bit of a pullback from yesterday’s strong rise and then the data that we got this morning helps the market and firms up the conviction that the U.S. economy is doing well,” Giri Cherukuri, head trader for Oakbrook Investments, which manages $2.7 billion in Lisle, Illinois, said in a telephone interview. “For the first few days in 2012 people don’t seem to be worried about the European threat.”

Consumer Shares Rally

The S&P 500 closed today at the highest level since Oct. 28 and the Dow ended at the highest since July 26.

Companies that rely on discretionary consumer spending climbed 0.7 percent as a group to lead gains among 10 industries as Ford, Home Depot Inc. and Lowe’s Cos. rallied at least 1.4 percent. Ford’s December light-vehicle deliveries rose 10 percent to 209,447, exceeding the average estimate for a 7.7 percent gain. General Motors Co. and Chrysler Group LLC also reported vehicle sales that beat estimates.

Retail sales at stores open more than a year may have gained as much as 4.5 percent in December, more than a previous estimate of as much as 4 percent, the ICSC said in a statement today. Sales at retail chains last week rose 5.3 percent from a year earlier, according to the New York-based researcher.

Consumer-discretionary companies, a group that includes retailers, clothing makers and hotel and restaurant chains, climbed 4.4 percent in 2011 for the fourth-best advance among the 10 main groups in the S&P 500, which ended the year almost unchanged.

Netflix Jumps

Netflix Inc., owner of the streaming and DVD-by-mail service, jumped 11 percent after reporting online viewing that surpassed an analyst’s estimate. Financial shares in the S&P 500 pared earlier declines, ending down 0.5 percent.

Natural gas rallied 3.4 percent to lead commodities higher amid forecasts for colder-than-normal weather in the U.S. northeast. Crude oil climbed 0.3 percent to $103.22 a barrel as European Union governments moved closer to halting purchases from Iran.

Banks lost 1.6 percent to lead declines in the Stoxx Europe 600 Index, which slipped 0.6 percent after reaching a five-month high yesterday. UniCredit SpA, Italy’s largest bank, tumbled 14 percent to 5.42 euros, the lowest closing price since 1992, as the bank said it will sell new shares in a 7.5 billion euro ($9.8 billion) offer to strengthen its capital position.

European Yields

Portugal’s two-year note yield extended declines after borrowing costs dropped at a bill sale, dropping 152 basis points to 14.57 percent. The government sold 1 billion euros of three-month bills at average yield of 4.346 percent, down from 4.873 percent at a previous auction.

Germany’s 10-year debt yield rose three basis points to 1.92 percent. The government sold 4.06 billion euros of bonds, after getting bids for 5.14 billion euros, more than the maximum sales target of 5 billion euros, at an average yield of 1.93 percent.

The yield on Spain’s 10-year bonds rose 15 basis points, sending the difference in yield with bunds 12 basis points wider to 3.51 percentage points.

Spanish Prime Minister Mariano Rajoy’s government may apply for loans from the European Union’s rescue fund and the International Monetary Fund to help restructure the country’s financial industry, Expansion reported, citing unidentified people with knowledge of the matter. Spain has no plans to seek external help to fund its overhaul of the industry, said Carmen Martinez Castro, the deputy minister for communication.

The euro weakened 0.8 percent against the yen as it declined against 13 of 16 major peers. The yen strengthened against 15 of its 16 most-traded peers.

‘Adjustment Process’

“The euro zone is in a long-term adjustment process,” Neil Mellor, a strategist at Bank of New York Mellon Corp. in London, said in a report. “Whether certain member states will be prepared to stick it out for the long run should they ride out the liquidity crisis relatively unscathed remains to be seen.”

Euro-area banks parked 453.2 billion euros with the Frankfurt-based ECB yesterday, up from 446 billion euros the previous day. That’s the highest since the euro’s introduction in 1999. Banks are depositing excess cash back with the ECB at the overnight rate of 0.25 percent, rather than lending it for more elsewhere.

Hungary’s forint fell to as weak as 321.68 against the euro, a record, on speculation that a resumption in talks with the IMF and the European Union on financial assistance will be delayed. The EU currently has no plans to resume aid talks with Hungary, European Commission spokesman Olivier Bailly said yesterday. The BUX Index of stocks lost 2.4 percent.

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong lost 1.4 percent and the Shanghai Composite Index fell 1.4 percent, in its first day of trading for the year. China’s home prices fell for a fourth month in December and Premier Wen Jiabao said business conditions may be “relatively difficult” this quarter. Benchmark indexes gained more than 1 percent in Thailand and Indonesia.

--With assistance from Stephen Kirkland in London, Ashley Lutz in New York and Tim Higgins in Detroit. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

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


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