While you were sleeping: Stocks rally in US and Europe

Monday 11th May 2009

Stocks rallied in the US and Europe on Friday amid relief the results of the US bank stress tests didn’t flag greater capital requirements and after figures showed the world’s biggest economy shed fewer-than-expected jobs.

Europe’s Dow Jones Stoxx 600 gained 1.6% to 209.51. Swiss Re jumped 18%, Royal Bank of Scotland climbed 14% and KBC Groep rose 9.7%. Investment group 3i Group Plc rose 14%. Norway’s financial services group DnB NOR ASA rose 14%.

Royal Bank of Scotland posted a first-quarter loss after bad debts soared to 2.9 billion pounds.

The UK’s FTSE 100 gained 1.4% to 4462.09, France’s CAC 40 jumped 1.9% to 3312.59 and Germany’s DAX Index gained 2.3% to 4913.90.

In the US, the Standard & Poor’s 500 climbed 2.4% to 929.23 and the Dow Jones Industrial Average advanced about 2% to 8574.65. The Nasdaq Composite rose 1.3% to 1739, rounding out its ninth straight weekly advance.

Financials led the Dow’s rally. JPMorgan Chase rose 11% to US$38.94, American Express gain 9.4% to US$28.40 and Citigroup rose 5.5% to US$4.02.

Ten of the biggest 19 American banks require about US$75 billion of capital, according to the stress test results. Already, some of the 10 have flagged steps to raise the capital. Bank of America is preparing some US$10 billion of asset sales.

Wells Fargo raised US$8.6 billion by selling 392.2 million shares at US$22 apiece, an 11% discount. Morgan Stanley raised $8 billion selling stock and debt. The banks have about six months to make up the required capital under the timeline laid out in the report, published on the Federal Reserve’s website.

Treasury Secretary Timothy Geithner said the Obama administration will provide substantial support to GMAC, the auto and home lender that needs US$11.5 billion additional capital, the largest deficit relative to its size, according to Reuters television.

Fifth Third Bancorp, which needs to boost equity capital by US$1.1 billion, soared 59% percent to US$8.49.

Google Inc. gained 2.7% to US$407.33 after brokerage Sanford C. Bernstein raised the search engine’s price target to US$600.

Chevron rose 3.5% to US$70.38 and Exxon Mobil gained 2.7% to US$70.80 as the price of crude oil rose to the highest level since November on optimism the smaller-than-expected job losses signaled the recession may be abating.

Crude oil for June delivery gained 3.4% to US$58.63 a barrel on the New York Mercantile Exchange. Crude could reach US$62.65 a barrel soon and rise to US$78 within six months, according to technical analysis from PVM Oil Associates, Bloomberg reported. If oil reaches $62.65, the equivalent to 38% of its 10-year rally, so-called Fibonacci sequences indicate it will add to its gains, according to the report.

US payrolls fell by 539,000 last month, according to the US Labor Department, less than the 590,000-600,000 estimated by economists and the smallest decline since October. The US shed 699,000 jobs shed in March. The jobless rate surged to 8.9%, the highest since 1983. Some 5.7 million Americans have lost their jobs since the US recession began.

The euro strengthened against the US dollar and the yen after the jobs data. It climbed 1.9% to $1.3639 and gained 0.9% to 134.18 yen. The dollar slipped 0.7% to 98.59 yen.

Gold fell after the US non-farm payrolls, which boosted optimism about an economic recovery, trimming demand for the precious metals as a haven.

Gold for June delivery fell 60 cents to US$914.90 an ounce on the New York Mercantile Exchange.

Berkshire Hathaway, the investment and insurance company founded by billionaire Warren Buffett, reported its first loss since 2001 in the first quarter, on losses from derivatives and writedowns of investments including ConocoPhillips. The net loss was US $1.53 billion, or $990 per Class A share, compared with a profit of US$940 million a year earlier.

Operating profit, excluding investments, topped analysts’ estimates at US$1.71 billion. Berkshire’s last posted a quarterly loss after the Se. 11 attacks drove up insurance claims.

Businesswire.co.nz

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