Bloomberg News

Stocks Reverse Declines as Banks Rally; Treasuries, Euro Retreat

January 09, 2012

Jan. 5 (Bloomberg) -- Most U.S. stocks rose, reversing an early slump, as banks and technology companies rallied and employment data bolstered optimism in the economy. Treasuries fell, while the euro and commodities dropped.

The Standard & Poor’s 500 Index added 0.3 percent to 1,281.06 at 4 p.m. in New York after losing as much as 0.9 percent. About three shares rose for every two that fell on U.S. exchanges. The Dow Jones Industrial Average slipped 2.72 points, or less than 0.1 percent, to 12,415.7. Ten-year Treasury yields gained two basis points to 2.00 percent. Banks led European stocks lower as the euro weakened to a 15-month low versus the dollar and Italian, Spanish and French bond yields rose. Sugar and natural gas led a drop in commodities.

Equities recovered from losses triggered by reduced earnings forecasts at companies including Target Corp. and J.C. Penney Co. and borrowing costs climbed at a French debt auction. Bank of America Corp., JPMorgan Chase & Co. and Sun Trust Banks Inc. gained as Deutsche Bank AG said fourth-quarter results should include some “encouraging signs.” ADP Employer Services said companies added 325,000 workers last month, the highest in records going back to 2001.

“We’re starting to see better data in the U.S. as opposed to the obsession with Europe that we’ve seen all of last year,” Donald Selkin, chief market strategist at National Securities Corp. in New York, said in a telephone interview. “Now you can see that there’s a separation between what’s happening here, which is better, and Europe, which is still projected to go into recession.”

Banks Rally

All but one of 24 stocks in the KBW Bank Index rose, sending the gauge to its highest level since October as Bank of America surged 8.6 percent to lead gains. Banks also climbed on speculation the Obama administration may introduce a nationwide mortgage-refinancing program. Bank of America slipped 2.2 percent in extended trading after an administration official with knowledge of the matter said the White House has no plans for refinancing program.

The refinancing speculation was fueled in part by a Jan. 4 note from Jaret Seiberg, a policy analyst at the Washington Research Group. He theorized that President Barack Obama could install a housing advocate at the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac.

‘Encouraging Signs’

Fourth-quarter earnings reports from the largest U.S. banks should include some “encouraging signs” including accelerating loan growth, higher mortgage revenues and improving credit, Deutsche Bank analyst Matt O’Connor said in a note to clients. JPMorgan is scheduled to release earnings on Jan. 13, the first major bank scheduled to report results.

The six largest lenders may post an average profit increase of 57 percent this year, according to 184 analysts’ estimates compiled by Bloomberg. Improved trading results, more investment-banking deals, expense-cutting measures and lower credit costs will lead to the increase in earnings that didn’t materialize last year, analysts say, helping financial shares rebound after they were the worst-performing industry in the U.S. in 2011.

Technology companies in the S&P 500 increased 0.5 percent. LSI Corp. rallied 7.7 percent, the most since July, after the maker of chips used in computer disk drives was raised to “outperform” from “neutral” at Wedbush Securities.

Gap Inc., Target Corp. and Kohl’s Corp. slid at least 1.8 percent as each reported December same-store sales that trailed analysts’ estimates after mistiming promotions or running out of inventory during the holiday shopping season.

Earnings Season

Alcoa Inc. is scheduled to mark the unofficial start of the fourth-quarter earnings season on Jan. 9. Profit at S&P 500 companies rose 6.2 percent during the September-December period, according to analyst estimates compiled by Bloomberg, which would mark the slowest growth since the third quarter of 2009.

ADP Employer Services said payrolls grew by 325,000 last month, topping the median economist forecast for growth of 178,000 jobs. Applications for U.S. jobless benefits fell 15,000 last week to 372,000, Labor Department figures showed. The median estimate of 38 economists in a Bloomberg News survey forecast 375,000 claims. The average over the past four weeks declined to the lowest level in more than three years.

The data comes before tomorrow’s payrolls report from the Labor Department, which is forecast to show the U.S. economy generated 155,000 jobs last month, according to the median estimate. Another report today showed the Institute for Supply Management’s index of U.S. non-manufacturing industries, which account for about 90 percent of the economy, rose to 52.6 in December from 52 a month earlier.

‘Kick in the Face’

“The recent economic data has been a kick in the face to the bears,” Tom Mangan, who helps oversee $3 billion at James Investment Research Inc. in Xenia, Ohio, said in a telephone interview. “Too much bad news is already in the market in a lot of different sectors and stocks,” he said. “So the market continues to have a firm tone to it.”

The S&P GSCI Index of commodities slumped 1.3 percent as 20 of the 24 materials it tracks declined. Natural gas led losses, sliding to a two-year low, after a government report showed a widening U.S. surplus. Oil fell for the first time in three days, slipping 1.4 percent to $101.81 a barrel, as U.S. inventories increased. Sugar tumbled 5.3 percent as weather conditions improved for Brazil’s cane crop, the world’s largest.

The Stoxx 600 Index fell 0.9 percent, extending yesterday’s 0.6 percent drop. UniCredit SpA slid 17 percent to the lowest level since 1992, plunging for a second day after yesterday announcing plans to sell shares in a rights offer at a 43 percent discount.

Benchmark indexes in Italy and Portugal declined more than 2.9 percent and France’s CAC-40 Index slid 1.5 percent.

Euro Weakens

The euro weakened against 14 of 16 major peers. The shared currency slid as much as 1.3 percent to $1.2771 and lost as much as 0.8 percent to 98.48 yen, an 11-year low. The dollar strengthened against 15 of 16 major peers, weakening only against the Taiwanese dollar.

The yield on France’s 10-year bond rose four basis points to 3.35 percent. The extra yield investors demand to hold French 10-year debt instead of benchmark German bunds increased 10 basis points to 149 basis points, the highest since November.

France sold 7.96 billion euros ($10.2 billion) of debt, with 10-year borrowing costs rising in the country’s first bond auction of the year as credit-rating companies threaten to cut the nation’s AAA grade.

Italy’s 10-year yield rose 15 basis points to 7.09 percent, while the rate on Spanish bonds of similar maturity increased 20 basis points to 5.64 percent.

Bailout Bonds

Europe’s bailout fund is losing its appeal as a bond issuer after investors ordered about 4.5 billion euros ($5.8 billion) of its 3 billion euros of notes compared with demand of nine times on its first deal a year ago. That’s after the European Financial Stability Facility offered investors a yield spread almost seven times what it paid to sell 5 billion euros of securities last January, according to data compiled by Bloomberg.

Hungarian stocks fell for a third day, sending the BUX index down 2.1 percent. The average yield on Hungarian 12-month bills jumped to 9.96 percent from 7.91 percent at the last sale of the same maturity on Dec. 22, according to auction results on the state debt management agency’s Bloomberg page.

--With assistance from Claudia Carpenter, Adam Haigh, Andrew Rummer, Daniel Tilles, Jason Webb and Stephen Kirkland in London, Lynn Thomasson in Hong Kong, Laura Kaster, Michael P. Regan and Hugh Son in New York and Timothy Homan and Lorraine Woellert in Washington. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@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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