Bloomberg News

Stocks Gain While Dollar, Treasuries Retreat on Manufacturing

February 02, 2012

Feb. 1 (Bloomberg) -- Stocks rose, halting a four-day drop in U.S. benchmark indexes, while the dollar fell and Treasuries snapped a five-day advance on signs global manufacturing is strengthening. Hogs led commodity gains, while natural gas slid.

The Standard & Poor’s 500 Index added 0.9 percent to close at 1,324.09 at 4 p.m. in New York and the Dow Jones Industrial Average climbed 83.55 points to 12,716.46, trimming an earlier 152-point rally that sent it above its highest close since May. Ten-year Treasury yields increased three basis points to 1.83 percent, while the Dollar Index fell 0.5 percent, amid lower demand for safer assets. The euro rallied 0.5 percent to $1.3155, nearing its highest level of 2012.

U.S. manufacturing grew at the fastest pace since June, according to data from the Institute for Supply Management, while a government report showed construction spending increased more than forecast. The U.K.’s factory measure unexpectedly reached an eight-month high and manufacturing gauges in Europe, China and India increased in January. A spokesman said Greece expects to complete talks on a private sector debt swap and a second rescue deal in coming days.

“The news on the economy is better,” David Sowerby, a Bloomfield Hills, Michigan-based portfolio manager at Loomis Sayles & Co., which oversees $150 billion, said in a telephone interview. “The uncertainty in Europe has diminished. While corporate profits have been less robust, they are still growing. Stock valuations had reflected a potential profit recession, which is not going to happen. That’s what’s moving stock prices higher.”

Rebound After Slump

The S&P 500 rebounded after its longest losing streak since November and the Dow Jones Industrial Average snapped its first four-day slump since August. The S&P 500 started the session trading for about 13.7 times its companies’ earnings and has been stuck below its five-decade average multiple of 16.4 since May 2010, the longest stretch since a 13-year period beginning in 1973.

Profits have topped estimates at about two-thirds of the 209 companies in the S&P 500 that released results since Jan. 9, data compiled by Bloomberg show. Earnings-per-share have risen 2.3 percent for the group amid 6.5 percent growth in sales.

Financial, industrial and commodity companies rallied 1 percent or more to lead gains in all 10 of the main industries in the S&P 500 today. A gauge of S&P 500 technology stocks rose to the highest level since 2001. The ISM’s U.S. manufacturing index increased to 54.1 in January from 53.1 in December. Fifty is the dividing line between growth and contraction, and the median forecast in a Bloomberg News survey called for an increase to 54.5.

Economic Data

Construction spending in the U.S. increased in December at the fastest pace in four months, reflecting broad-based gains that signal the industry is stabilizing. Building outlays grew 1.5 percent, Commerce Department figures showed, triple the rate of the median economist estimate in a survey.

Bank of America Corp., Hewlett-Packard Co. and United Technologies Corp. climbed at least 2.4 percent to lead gains in the Dow.

Morgan Stanley rose 4 percent as people with knowledge of the matter said Facebook Inc. chose the firm to take the lead on its planned initial public offering. Broadcom Corp., a maker of chips that help mobile devices connect to the Internet, gained 8.1 percent after forecasting sales that may top estimates. Whirlpool Corp. advanced 13 percent, the most in almost three years, as the world’s largest appliance maker projected earnings that beat forecasts.

Amazon.com Inc. tumbled 7.7 percent after the world’s largest Internet retailer reported sales that missed estimates.

‘Golden Cross’

The S&P 500 is up 20 percent from last year’s low in October. Its 50-day moving average rose yesterday above the 200- day moving average for the first time since August. The pattern, known as a golden cross, may signal the rally will continue, according to some technical analysts and investors whose decisions are influenced by price charts.

The Dollar Index, which tracks the U.S. currency against those of six trading partners, snapped a two-day advance.

Stocks also climbed after companies added 170,000 workers in January, reflecting job gains in services and at small businesses, according to a report from ADP Employer Services based on payrolls. The increase was less than the 182,000 forecast by economists. Government data in two days is forecast to show a 163,000 gain in private jobs, while total payrolls increased 145,000, according to the median economist projections.

Commodities

Wheat futures rose to a four-month high, climbing 1.2 percent to $6.7425 a bushel, as sub-zero temperatures spread across Russia and parts of Europe, raising concern that winter crops may suffer damage where snow is insufficient to insulate fields. Lean hogs, silver, soybeans and copper rallied more than 1.3 percent to lead gains in 18 of 24 commodities tracked by the S&P GSCI Index, while declines in oil and natural gas left the gauge little changed.

Oil slipped 0.9 percent to a six-week low of $97.61 a barrel after government data showed U.S. inventories increased more than forecast.

Natural gas futures fell 4 percent in New York after Exxon Mobil Corp., the largest U.S. gas producer, said it hasn’t curbed drilling even though rising U.S. output and mild weather drove prices to a 10-year low.

Gas has dropped 20 percent this year, the biggest loser on the S&P GSCI commodity index. Exxon said yesterday that it’s bullish on gas, while Chesapeake Energy Corp. and ConocoPhillips last week announced output cuts. Temperatures may be above normal in most of the U.S. through Feb. 15, according to MDA EarthSat Weather in Gaithersburg, Maryland.

The U.S. 10-year Treasury note fell for the first time in six days. German bunds dropped, with the 10-year yield increasing seven basis points to 1.85 percent, as the nation sold 4.093 billion euros ($5.37 billion) of 2 percent, 10-year securities at an average yield of 1.82 percent.

European Bonds, Stocks

Portugal’s 10-year bond yields slid 118 basis points to 15.22 percent and the two-year note yield tumbled 176 basis points to 18.79 percent as borrowing costs declined when the nation auctioned 1.5 billion euros of bills.

The Stoxx Europe 600 Index jumped 2 percent to a six-month high as about 15 stocks gained for each that fell. ICAP Plc jumped 7.7 percent as the world’s biggest broker of transactions between banks said annual pretax profit will be at the “upper end” of analyst estimates. Banca Monte dei Paschi di Siena SpA and Banco Popolare SC led a rally in Italian banks, advancing more than 10 percent.

A manufacturing gauge based on a survey of purchasing managers in the euro region rose to 48.8 from 46.9 in December, London-based Markit Economics said today. It had previously reported a gain to 48.7. A reading below 50 indicates contraction. A German output gauge reached the highest in six months, while Austria also reported an expansion, Markit said.

Default Swaps

The cost of insuring against default on European sovereign debt fell, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declining 15 basis points to 324.5 basis points.

The Shanghai Composite Index dropped 1.1 percent after the 21st Century Business Herald reported new loans in January may be below 1 trillion yuan ($158.6 billion). New loans exceeded that amount every January over the past three years, according to data compiled by Bloomberg.

China’s purchasing managers’ index rose from 50.3 in December to 50.5 in January, the nation’s statistics bureau and logistics federation said in a statement.

Emerging Markets

The MSCI Emerging Markets Index advanced 1 percent, heading for its highest level since Sept. 1. The ISE National 100 Index jumped 3.6 percent in Istanbul and the Micex Index advanced 1.7 percent in Russia. Benchmark indexes rose at least 1.3 percent in Poland and Hungary.

Equities around the world got off to the best start in 18 years, topping gains in commodities and handing investors January’s best returns, as U.S. economic growth shows signs of accelerating and European leaders move closer to a solution on the region’s debt crisis.

The MSCI All-Country World Index rose 5.8 percent including dividends in January as banks and mining companies rallied 9.3 percent or more, according to data compiled by Bloomberg. The Standard & Poor’s GSCI Total Return Index of metals, fuels and agricultural products added 2.2 percent, the most since October. The U.S. Dollar Index, a gauge of the currency against six major peers, fell 1.1 percent last month.

--With assistance from Adria Cimino in Paris, Daniel Tilles, Andrew Rummer, Abigail Moses, Jason Webb and Claudia Carpenter in London, John Buckley in Amsterdam, Whitney McFerron in Chicago and Christine Buurma in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Michael Shanahan in London at mshanahan3@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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


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