Stocks rose, rebounding from last week’s losses, as Federal Reserve Chairman Ben S. Bernanke said accommodative policy is still needed and investors speculated the European Union will increase the size of its bailout fund. Treasuries pared losses, while commodities climbed.
The Standard & Poor’s 500 Index rallied 1.4 percent to close at 1,416.51 at 4 p.m. New York time, returning to its highest level in almost four years. The Stoxx Europe 600 Index (SXXP) added 0.9 percent. Treasury 10-year yields climbed two basis point to 2.25 percent after increasing as much as six points earlier. Oil increased 16 cents to $107.03 a barrel. The Dollar Index, a gauge of the U.S. currency against six major peers, fell for a second day while gold and silver rallied.
Bernanke said that while he’s encouraged by the unemployment rate’s drop to 8.3 percent, further improvement in the job market will require continuing the central bank’s stimulative monetary policies. Chancellor Angela Merkel said Germany may back plans for the temporary and permanent euro-area rescue funds to run in parallel. European finance ministers will meet on March 30 to discuss raising a 500 billion-euro ($664 billion) ceiling on the region’s financial firewall.
“Bernanke made it clear that while the Fed is not going to be revving the engine anytime soon, they are going to keep their foot on the gas,” Stephen Wood, the New York-based chief market strategist for Russell Investments, said in a telephone interview. His firm oversees $140.8 billion. “At the same time, the Europeans appear to be more serious about addressing risks. They’ve addressed shorter-term liquidity, but solvency remains an issue.”
The S&P 500 erased last week’s 0.5 percent drop, the bigger of two weekly declines in 2012. Gauges of health-care, technology, consumer-discretionary and financial companies rose at least 1.6 percent to lead gains in all 10 of the main industry groups in the S&P 500.
American Express Co., JPMorgan Chase & Co. and United Technologies Corp. rose more than 2 percent to lead gains in the Dow average. Lions Gate Entertainment Corp. rose 4.5 percent as “The Hunger Games” film collected $155 million in weekend sales in the U.S. and Canada, a record for the month of March.
The S&P 500 is up about 13 percent so far this year, poised for its best first-quarter rally since 1998. The benchmark index of American equity has rebounded about 109 percent from its bear-market low three years ago, trimming the retreat since its 2007 record to less than 10 percent.
Hedge funds trailing the S&P 500 for the last five months are giving up on bearish bets and buying stocks at the fastest rate in two years.
Hedge Fund Bulls
A gauge of hedge-fund bullishness measuring the proportion of bets that shares will rise climbed to 48.6 last week from 42 at the end of November 2011, the biggest increase since April 2010, according to data compiled by the International Strategy & Investment Group. The Bloomberg aggregate hedge fund index gained 1.4 percent last month, lagging behind the S&P 500 by 2.65 percentage points.
Treasuries pared declines today after Bernanke, in a speech in Arlington, Virginia, said the drop in the unemployment rate may reflect a reversal of the large layoffs that occurred during late 2008 and over 2009.
“To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” he said.
Philadelphia Fed President Charles Plosser said he doesn’t currently see any need for additional monetary stimulus as the economy recovers.
“The economy’s doing better, we’re gaining some traction,” Plosser said in an interview with Bloomberg Television in Paris today. “We’re not entirely out of the woods. But I’ve got some cautious optimism.”
Benchmark 10-year yields have risen 27 basis points since the end of February, headed for their steepest monthly increase since December 2010. The U.S. is scheduled to sell $35 billion of two-year notes tomorrow, $35 billion of five-year debt on the following day and $29 billion of seven-year securities on March 29.
Merkel told reporters in Berlin today: “We could imagine that the program that has already been agreed with 200 billion” euros “could run parallel” with the permanent European Stability Mechanism, which comes into force in July.
‘Reinforcement of the Firewalls’
EU Economic and Monetary Affairs Commissioner Olli Rehn said he’s confident ministers will resolve their differences on providing more bailout funding. Speaking yesterday to reporters in Saariselkae, Finland, Rehn said officials “will take a convincing decision on the reinforcement of the firewalls.”
The Stoxx 600 rallied after falling 2.5 percent last week, the biggest drop of 2012. EasyJet Plc (EZJ) climbed 7.5 percent as Europe’s second-biggest discount carrier forecast a narrower six-month loss. Aberdeen Asset Management Plc, a Scottish fund manager, advanced 4.4 percent after assets under management rose 6 percent in the first two months of the year.
European equities also gained after German business confidence unexpectedly rose in March. The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, increased to 109.8 from a revised 109.7 in February. Economists forecast it would remain unchanged at the initial February reading of 109.6, according to the median of 44 estimates in a Bloomberg survey.
The MSCI Emerging Markets Index (MXEF) added 0.4 percent after slumping 2 percent last week. The Hang Seng China Enterprises Index (HSCEI) slid 0.6 percent, its ninth consecutive decline, its longest losing streak since July 2010. The BSE India Sensitive Index (SENSEX), or Sensex, fell 1.8 percent amid concern the government will find it difficult to rein in the fiscal deficit, and as the rupee weakened to a 10-week low. Russia’s Micex Index gained 1.7 percent.
The euro climbed for a second day against its Japanese counterpart and rose 0.4 percent to $1.3329. China’s yuan rose 0.01 percent to 6.312 per dollar, according to the China Foreign Exchange Trade System, after the central bank set the daily reference rate at a record high.
The S&P GSCI (SPGSCI) commodities gauge increased 0.3 percent as copper, silver and gold climbed at least 1.7 percent to lead gains among 19 of 24 materials.
Hedge funds wagered the wrong way on commodity prices for a fourth consecutive week, boosting bullish holdings just before reports showing a contraction in manufacturing from China to Europe drove prices lower.
Money managers lifted net-long positions in 18 U.S. futures and options by 2.9 percent to 1.17 million contracts in the week ended March 20, Commodity Futures Trading Commission data show. The S&P GSCI of 24 raw materials dropped 1 percent last week, led by declines in lead and corn. Orange juice tumbled 11 percent, the most since August.
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