While you were sleeping: Banks up on TED spread, consumers glum

Wednesday 1st April 2009

Stocks on Wall Street rose, led by a rally in financial such as Bank of America and Citigroup, after the so-called TED spread narrowed, a sign that investors are more willing to take on risk.

The TED spread, which is the gap between interest rates on three-month LIBOR and the three-month US Treasury bill, narrowed to below one percentage point. It was higher than 4.5 percentage points before Lehman Brothers collapsed.

The Dow Jones Industrial Average rose 1.2% to 7608.92 and the Standard & Poor's 500 climbed 1.3% to 797.87. The Nasdaq Composite rose 1.8% to 1528.59.

Bank of America climbed 13% to US$6.79 and Citigroup rose 9.5% to US$2.53. JPMorgan Chase gained 6.8% to 26.54.

Aluminium producer Alcoa jumped 9% to US$7.34 amid speculation its 78% slide in the past 12 months makes it a takeover for commodity groups such as BHP Billiton.

General Motors tumbled 28% to US$1.94, leading decliners on the Dow for a second day amid concern the automaker will struggle to come up with a restructuring plan that satisfies the federal government and prevents bankruptcy.

Stocks rallied even as economic indicators suggested the world's largest economy remains mired in recession. US consumers stayed at their gloomiest in at least 42 years.

The Conference Board's confidence index was at 26 this month, little changed from the record low 25.3 it reached in April. The board began compiling the index in 1967. The Institute for Supply Management-Chicago's business barometer was at 31.4, on a scale where reading below 50 show a contraction in activity.

Later this week, the Labor Department is scheduled to release payrolls data for March, which is expected to show the fourth straight month where the US shed more than 600,000 jobs. Some 658,000 jobs were lost this month, according to a Bloomberg survey.

The yen weakened against the US dollar, rounding out its worst quarterly loss in eight years, after Japanese Prime Minister Taro Aso said his nation's economy is still deep in crisis.

The yen fell to 98.82 per dollar from 97.26 yesterday. It fell to 130.81 per euro from 128.36. The dollar fell to $1.3249 per euro from $1.3199 as the rally in stock markets stoked risk appetite and reduced demand for dollars as a haven.

Copper rose as the US dollar weakened against most major currencies. Copper futures for May delivery gained 4.4% to US$1.8445 a pound on the New York Mercantile Exchange. The metal is up more than 30% in the first quarter.

Crude oil for May delivery rose 2.6% to US$49.66 a barrel in New York. Gold for June delivery was little changed at US$919.10 an ounce.

In Europe, the Dow Jones Stoxx 600 Index rose 3.5% to 176.46, led by a 14% gain for Bank of Ireland and Heidelberg Cement. Germany's DAX 30 rose 2.4% to 4084.76, France's CAC 40 climbed 3.2% to 2807.34 and the UK's FTSE 100 jumped 4.3% to 3926.14.

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