While you were sleeping: Wall St gains with oil; Buffett warns of 'debt gusher'

Thursday 20th August 2009

Stocks on Wall Street advanced for a second day as a rebound in oil lifted energy companies and drugmaker Merck & Co. climbed after a patent victory.

The Dow Jones Industrial Average rose 0.7% to 9279.16 and the Standard & Poor’s 500 gained 0.7% to 996.46, while the Nasdaq Composite advanced 0.7% to 1969.24. Helping underpin gains is optimism the earnings season is painting a more upbeat picture of corporate health than was expected.

Institutional investors are being lured back into equities and are reducing their cash holdings amid growing sentiment the global economy is recovering, according to a, a Merrill Lynch & Co. survey. A net 34% of fund managers polled were ‘overweight’ equities, the highest level since October 2007, while the average cash position fell to 3.5%, the lowest since July 2007.

Per-share profits have beaten analysts’ estimates by an average 9.9% among the 472 companies in the S&P 500 that have reported since June 17, according to Bloomberg. Still earnings have tumbled by an average 29%.

Exxon Mobil gained 2.3% to US$68.00 after crude oil rose above US$72 a barrel on signs that stockpiles of crude are falling.

US crude inventories unexpectedly fell by 8.4 million barrels last week as imports declined, according to the US Energy Information Administration. Gasoline stockpiles also decreased, with analysts speculating companies may be holding crude in offshore tankers in anticipation of higher prices.

US crude settled up US$3.23 at US$72.42 a barrel while London Brent crude rose US$2.22 to settle at US$74.59 a barrel.

Merck led gains in drugmakers, rising 2.5% to US$31.48 after a federal judge ruled that Teva Pharmaceutical can’t copy its asthma drug Singulair.

Shares also rose amid speculation the Obama administration will announce a second stimulus plan to bolster the world’s largest economy, adding to the existing US$787 billion programme.

Freeport-McMoRan Copper & Gold climbed 2.7% to US$62.09, leading raw materials companies higher as commodity prices gained.

Gold futures for December delivery gained 0.6% to US$945 an ounce in New York.

Stocks weakened in Europe, with the Dow Jones Stoxx 600 Index falling 0.3% to 226.45. Volkswagen led the decline, falling 14% after a German media report that Qatar paid Porsche about half the market price for its shares in Volkswagen.

UK banks fell after a survey by KPMG suggested the retail business of the nation’s lenders may post losses in the second half amid higher wholesale funding costs, the impact of bad loans and increased rivalry.

UBS AG, Switzerland’s biggest bank, slid 1% after agreeing to divulge information on 4,450 accounts to settle a US lawsuit on tax evasion.

The accord between the US and the Swiss lender ends a six-month legal stoush that challenged the famous secrecy of the European nation’s banking system. The deal underlines America’s commitment to catch “tax cheats around the world,” Internal Revenue Service Commissioner Douglas Shulman told reporters.

The UK's FTSE 100 rose 0.1% to 4689.67, Germany’s DAX 30 dropped 0.4% to 5231.98 and France’s CAC 40 was little changed at 3450.34.

The US dollar declined against the euro as stocks on Wall Street rose, reviving investors’ risk appetite. The pound weakened against the euro after minutes of the Bank of England’s last policy meeting showed Governor Mervyn King wanted to increase the scope of asset purchases.

The dollar weakened to $1.4222 per euro from $1.4136 yesterday. The yen strengthened to 94.04 per dollar from 94.69 and was little changed at 133.76 against the euro.

The Dollar Index, which tracks the greenback against a basket of six currencies, fell 0.6% to 78.52.

Billionaire investor Warren Buffett said the Obama administration has to carefully manage the effects of the “gusher of federal money” that’s been pumped into the financial system and now poses a threat to the American economy, he wrote in a New York Times column.

Fiscal policy is now in “uncharted territory” and the side effects of the “monetary medicine” have yet to be felt. “Their threat may be as ominous as that posed by the financial crisis itself,” he wrote.

Businesswire.co.nz

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