U.S. stocks rallied, with the Dow Jones Industrial Average erasing its decline since Election Day, as investors weighed progress in U.S. budget talks and German investor confidence jumped. Treasuries fell.
The Dow increased 78.56 points to 13,248.44 and the Standard & Poor’s 500 Index added 0.7 percent to end at 1,427.84, less than one point below its Election Day close. The Stoxx Europe 600 Index increased 0.3 percent, closing at an 18- month high, and Germany’s DAX Index reached an almost five-year high. Ten-year Treasury yields rose four basis points to 1.65 percent. Oil halted a five-day drop, while wheat slid as government data showed global inventories will shrink less than forecast. Spain’s bonds jumped after an auction.
The Dow and S&P had lost as much as 5.3 percent after the Nov. 6 elections set up a budget showdown between President Barack Obama and the Republican-controlled House. House Speaker John Boehner today reiterated his call for Obama to offer proposed spending cuts as part of deficit-reduction plans. Federal Reserve officials began a two-day meeting to be followed by statements on the economy and monetary policy.
“On the surface the rhetoric with the fiscal cliff hasn’t changed, but it seems like underneath there’s some progress,” James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a phone interview. “We’ve been dealing with this mountain of uncertainty, and if we can scale that then we have a pretty good-looking future.”
Stocks pared gains today as Senate Majority Leader Harry Reid told reporters that Republicans were holding middle-class tax cuts “hostage” and have offered no specifics on what they want in budget negotiations. The Democrat from Nevada said “it’s going to be extremely difficult to get it done before Christmas, but it could be done.”
U.S. lawmakers need to agree on a budget to prevent more than $600 billion of automatic tax increases and spending cuts from coming into effect next year.
The S&P 500 climbed for a fifth straight day, matching its longest rally since August, and extended its 2012 advance to almost 14 percent. Fed officials are considering whether to supplement $40 billion a month of mortgage-bond buying with purchases of Treasuries when their Operation Twist program expires at the end of the month.
“The real challenge is at some point in time you’re pushing on a string, as you inject all that liquidity into the system,” Paul Ballew, chief global economist at Dun & Bradstreet Corp. in Short Hills, New Jersey, said in an interview with Mark Mills on the “Bloomberg - The First Word” radio program today. “The bigger question right now is the fact that after four years of aggressive monetary policy, whether or not anything else will really make a material difference on the direction of the recovery.”
Intel Corp., 3M Co., Merck & Co. and Microsoft Corp. rose at least 1.5 percent to lead gains in the Dow Jones Industrial Average. American International Group Inc. rallied 5.7 percent after the Treasury Department said it is selling its last 234.2 million shares of the insurer, bringing to an end its bailout of the company that fueled resentment against Wall Street.
Apple Inc. advanced 2.2 percent as Morgan Stanley reiterated its overweight rating for the world’s most valuable company after the stock lost 25 percent from its record in September. Delta Air Lines Inc. increased 5.1 percent after agreeing to buy a 49 percent stake in Virgin Atlantic Airways Ltd. from Singapore Airlines Ltd.
The dollar weakened against 12 of 16 major peers, while the euro strengthened against 13 of 16 counterparts and climbed 0.5 percent to $1.3004.
Wheat led losses in commodities, tumbling as much as 3.9 percent after a government report showed global inventories will shrink less than forecast, easing concern that droughts from the U.S. to Australia were creating a grain shortage.
Silver, natural gas, aluminum and copper also lost at least 0.4 percent, while gains in cotton, coffee and cattle led the S&P GSCI Index of commodities to a 0.1 percent gain. Oil rose for the first time in six days, climbing 0.3 percent to $85.79 a barrel, as OPEC members gathered in Vienna to discuss output levels. The Organization of Petroleum Exporting Countries will probably leave its production quota unchanged when ministers meet tomorrow in Vienna, a Bloomberg survey showed.
The seven-day rally for the Stoxx Europe 600 Index (SXXP) is the longest winning streak in 17 months. Suez Environnement Co., Europe’s second-biggest water company, rallied 8.3 percent, the most in three years, after GDF Suez Chief Executive Officer Gerard Mestrallet said his company won’t reduce its stake.
Germany’s DAX Index increased 0.8 percent to the highest level since January 2008. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations climbed to 6.9 from minus 15.7 in November, beating the minus 11.5 forecast in a Bloomberg survey of 38 economists.
The German data “shows a clear improvement in sentiment,” said Jerome Forneris, who helps manage $8.5 billion at Banque Martin Maurel in Marseille. “This statistic is closely followed by investors. Germany is the locomotive of Europe.”
KBC Groep NV sank 4.8 percent as Belgium’s biggest bank and insurer by market value sold 1.25 billion euros ($1.6 billion) of shares. Diageo Plc fell 1.6 percent after the world’s largest distiller ended talks about acquiring Cuervo tequila.
The franc weakened 0.4 percent against the euro. UBS AG, Switzerland’s biggest bank, said in a notice published on the Swift system yesterday that it would start charging financial institutional clients for cash balances held in Swiss francs from Dec. 21. UBS said charges would be communicated individually to clients within days. The franc dropped last week as Credit Suisse was said to set a negative rate of as much as minus 1 percent on balances held in the currency.
The yield on Spain’s two-year note slid 11 basis points to 2.98 percent as the government exceeded its maximum target at a bill sale and borrowing costs fell.
Italy’s 10-year yield dropped 10 basis points to 4.72 percent and the cost of insuring against default on Italian government debt fell for the first time in six days, with credit-default swaps linked to the nation’s bonds losing four basis points to 288.
The MSCI Emerging Markets Index (MXEF) added 0.5 percent, with benchmark gauges in South Korea, Poland, Israel and Brazil gaining at least 0.4 percent.
The Shanghai Composite Index (SHCOMP) fell 0.4 percent after new yuan loans were less than analysts predicted. Shares in the United Arab Emirates tumbled, with Abu Dhabi’s ADX General Index sinking 2.6 percent and Dubai’s DFM General Index slumping 1.5 percent, led by telecommunications companies as the country set new royalty rates.
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