U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding from the second-biggest drop this year, as bank downgrades from Moody’s Investors Service were no worse than the firm had warned. Oil rallied from an eight-month low, while Treasuries fell.
The S&P 500 (SPX) climbed 0.7 percent as of 4 p.m. in New York after falling 2.2 percent yesterday. Treasury 10-year yields increased five basis points to 1.67 percent, while rates on similar maturity Portuguese debt slid below 10 percent for the first time in more than a year. Oil climbed 2.5 percent in New York and corn posted the biggest weekly jump since May 2011.
Financial shares rallied and Morgan Stanley (MS:US) rose after Moody’s reduced the bank by two levels rather than a threatened three grades. The European Central Bank said it decided this week to relax some rules on the collateral that banks can offer in exchange for central bank funds.
“The rating companies are always late to the party,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. “The markets were pricing in the worst possible scenario. To the extent that the downgrades were not as bad as expected, that was positive.”
The S&P 500 has fallen 0.6 percent this week. The best time to purchase equities when the index drops more than 2 percent is noon the next day, according to Birinyi Associates Inc., which studied similar scenarios going back 18 months.
Morgan Stanley gained 1.3 percent. JPMorgan Chase & Co. added 1.4 percent. The prospect of downgrades had weighed on banks since Moody’s said Feb. 15 it was reviewing 17 banks with capital-markets operations because of fragile confidence and tighter regulations that pinched revenue.
The reductions by Moody’s are “a mea culpa from 2007 and 2008,” said James Leonard, a credit analyst at Morningstar Inc. “The banks have gotten so much better in the last few years in terms of capital, yet their ratings keep going down. What does that tell you? That the ratings were so wrong before.”
The Stoxx Europe 600 Index lost 0.7 percent as German business confidence declined to its lowest level in more than two years. The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, dropped to 105.3 from 106.9 in May.
The euro gained against half its major counterparts. The European Central Bank eased terms for collateral, while German Chancellor Angela Merkel said direct bailout funding to banks violates the region’s treaties. The 17-nation currency strengthened 0.2 percent to $1.2564.
Volatility on Portuguese bonds was the highest in euro-area markets, according to measures of 10-year debt, the spread between two- and 10-year securities and credit-default swaps. Finance Minister Vitor Gaspar said the nation is “determined” to meet its budget deficit target this year.
“Portugal’s adjustment program has been carried out as expected,” Gaspar told reporters in Luxembourg after a meeting of euro-area finance ministers late yesterday. “The successful completion of Portugal’s fourth adjustment program review was followed by very favorable developments in the bond market.”
Portuguese 10-year bonds advanced for a seventh day, sending yields down 66 basis points to 9.49 percent.
Natural gas gained for a second day on speculation that a weather system near the Yucatan Peninsula may strengthen into a tropical storm and move toward production platforms in Gulf of Mexico next week. The futures for July delivery increased 1.8 percent.
Corn futures jumped 1 percent on concern dry weather and warmer temperatures next week will increase stress on crops in the U.S. Midwest. Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, government data show.
The MSCI Emerging Markets Index (MXEF) retreated 1.6 percent. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong fell 1.7 percent and the BSE India Sensitive (SENSEX) Index slid 0.4 percent. Russia’s Micex Index sank 1.1 percent and the ruble slipped 1 percent.
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