While you were sleeping: US recession ends; stocks rally, greenback weakens

Friday 30th October 2009

The world’s largest economy expanded in the third quarter, ending a year-long slump as massive fiscal stimulus kicked in. Stocks rallied on Wall Street, commodities rose and the US dollar weakened.

US third-quarter gross domestic product grew a greater-than-expected 3.5%, according to the Commerce Department. Household spending rose 3.4%, the most since 2007.

America climbed out of its worst downturn in more than 70 years, stoking speculation the federal government will take a harder look at exiting its extraordinary measures to revive the US economy and underpin the financial system. A return to growth also suggests the Federal Reserve will be more inclined to end its policy of keeping interest rates near zero.

The US recovery still may be held back by the number of Americans out of work. A higher-than-expected 530,000 workers filed claims for jobless benefits last week, according to the Labor Department.

Fed funds futures indicate a 33% chance that the fed will raise interest rates at its meeting in March.

The Standard & Poor’s 500 rose 2.3% to 1066.11 and the Dow Jones Industrial Average climbed 2.1% to 9962.58. The Nasdaq Composite advanced 1.8% to 2097.55.

Caterpillar Inc., the heavy earthmoving equipment manufacturer, gained 5.2% to US$57.25. Aluminium producer Alcoa Inc. rose 9% to US$13.00.

Kellogg Co. gained 2.8% to US$51.38 and Procter & Gamble climbed 4% to US$59.54 after posting earnings that beat estimates.

The VIX, the measure of US stock options known as Wall Street’s `fear gauge’, fell 11% to 24.76 as fewer investors felt the need to protect their holdings from weakening prices.

The dollar and yen tumbled against the euro after the GDP report encouraged investors to seek riskier, or higher-yielding assets in other currencies. The greenback and yen are favourites for the carry trade, where investors borrow in currencies where rates are low to invest elsewhere.

The dollar fell to US$1.4831 per euro in New York from $1.4706. Japan’s currency weakened 1.5% to 135.64 per euro. The yen traded at 91.48 per dollar from 90.75.

US Treasuries sold off after the economic report, which sapped demand at the government’s US$31 billion sale of seven-year notes.

The yield on 10-year Treasuries climbed 8.1 basis points to 3.496%.

Crude oil jumped more than 3%, edging back toward US$80 a barrel on optimism a return to economic growth in the US will spur demand for fuel.

US crude oil futures rose US$2.41 to US$79.87 on the New York Mercantile Exchange.

Copper futures for December delivery gained 2.6% to US$3.0075 a pound in New York.

The return to US growth also drove up shares in Europe. The Dow Jones Stoxx 600 advanced 1.9% to 241.73.

KBC Group NV soared 17% after saying it was making progress in talks with the European Union over repaying government aid.

Among national benchmarks, the UK’s FTSE 100 rose 1.1%, France’s CAC 40 climbed 1.4% and Germany’s DAX 30 rose 1.7%.

Businesswire.co.nz

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