While you were sleeping: S&P 500 tops 900; US home sales rise

Tuesday 5th May 2009

The Standard & Poor’s 500 Index topped 900 for the first time in four months after as better-than-expected home sales and construction spending stoked optimism the economic slump is abating, helping US stocks rally.

The S&P 500 climbed 3.4% to 907.24 and the Dow Jones Industrial Average rose 2.6% to 8426.74. The Nasdaq Composite climbed 2.6% to 1763.56.

Financials led the rally. Bank of America surged 19% to US$10.38, American Express rose 12% to US$27.28 and Citigroup climbed 7.7% to US$3.20. Alcoa Inc. rose 6.9% to 10.36 and Freeport-McMoRan Copper & Gold rose 9.4% to US$48.64 as prices of metals gained.

Homebuilder Lennar Corp. gained 9.3% to US$10.34 after the home sales data. Sprint Nextel Corp. jumped 7.1% to US$5.00 after posting a profit.

Sales of existing homes in the US advanced for a second month in March while construction spending gained for the first time in seven months.

The National Association of Realtors said contracts to buy previously owned homes rose 3.2% in March, following a 2% gain in February. Commerce Department figures showed construction rose 0.3%, against expectations of a decline, helped by government construction projects.

American lenders expect an increase in bad loans and losses this year, according to a Federal Reserve quarterly survey of bank loan officers that comes before the release of results of so-called stress tests on the nation’s 19 largest banks.

More than two-thirds of those surveyed said delinquent loans will increase this year if the economy continues along the lines of its forecast contraction. More banks tightened criteria for mortgage lending and consumer credit than in the previous quarter’s survey. Still, the number tightening conditions for business loans fell.

“The vast majority of domestic and foreign respondents indicated that they expect deterioration in credit quality for all types of business and household loans,” the Fed’s report said.

The survey indicates banks are still holding onto cash rather than extend credit despite the billions of dollars in federal aid and loans extended to lenders. US banks are sitting on a record US$1.1 trillion of cash, Bloomberg reported.

The Fed is due to release the stress test results on May 7. Citigroup is considering approaches to private investors to strengthen its balance sheet to avoid using bailout funds that would force it to cede control to the government, Bloomberg reported, citing people familiar with the matter.

Citigroup received a US$52 billion rescue last year and may not need another cash infusion, according to the report. Talks are now focused on how much of the preferred stock held by the government will be converted into ordinary shares.

A group of Chrysler LLC’s lenders is seeking to block the sale of the automaker to a group led by Fiat. The group, calling itself Chrysler’s non-TARP lenders, said creditors who accepted the proposal were conflicted because they had accepted aid from the Troubled Assets Relief Program.

Crude oil rose to the highest level in five weeks on optimism the economic slump is easing. Crude for June delivery gained 2.4% percent to US$54.47 a barrel on the New York Mercantile Exchange.

Copper climbed in London on optimism about economic growth returning and as stockpiles of the metal monitored by the London Metal Exchange shrank. Gold for June delivery rose 1.8% to US$904.60 an ounce in New York.

The US dollar and the yen weakened against the euro as signs of economic revival reduced demand for the world’s biggest currencies and stoked demand for higher yielding, or riskier assets.

The dollar fell to $1.3404 per euro from $1.3273 and the yen declined to 132.50 per euro from 131.59. The yen strengthened to 98.87 per dollar from 99.11.

The dollar Index, which measures the greenback against a basket of major currencies, fell 0.8% to 83.859.

Stocks rose in Europe on better-than-expected US economic data and signs of returning demand in China, where manufacturing expanded.

The Dow Jones Stoxx 600 Index rose 1.8% to 203.77. ArcelorMittal, the world’s largest steelmaker, climbed more than 8%.

Germany’s DAX Index rose 2.8% to 4902.45. The nation’s economy will start to recover in 2010, growing by 0.5% after a forecast 4.5% slump this year, according to an IW Cologne institute survey of 1,900 companies last month. The euro-zone economy will grow 0.1% next year, after shrinking 4% in 2009, the European Commission said today. The jobless rate in the region will reach 11.5% next year, it said.

France’s CAC 40 rose 2.5% to 3237.97 and in London, the FTSE 100 slipped 0.1%

Businesswire.co.nz

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