While you were sleeping: Stocks rally on global economic hope

Tuesday 22nd December 2009

Stocks rallied across Europe and on Wall Street amid signs that the global economic recovery was strengthening.

The Dow Jones Stoxx 600 rose 1.4 % to 249.57 at the close in London, the biggest gain in almost three weeks, as all 19 industry groups advanced.

Sixteen of the 18 markets in Western Europe advanced with the FTSE 100 up 1.9%, Germany’s DAX up 1.7% and France’s CAC 40 Index rising 2.1%.

Investors were buoyed by forecasts for better growth. Europe’s economy might gather strength next year, the European Commission said in its quarterly report today. The 16-nation euro region may expand 0.7 % in 2010 and 1.5 % in 2011 after global governments provided “massive economic support,” the commission said.

In the U.K. in particular, gross domestic product was forecast to expand 1.2 % next year, the Confederation of British Industry said overnight, up from an earlier forecast for 0.9 %.

Among the advancing stocks in Europe were Safran, Cairn Energy, Royal Dutch Shell, Aker Solutions and Outokumpu.

On Wall Street, investors appeared to be betting that this week’s pending U.S. economic reports would bolster confidence that the recovery was accelerating. Among the reports this week are the final estimate for GDP in the third quarter and home sales.

The Dow Jones Industrial Average rose 1%, the Standard & Poor’s 500 Index was up 1.2% and the Nasdaq Composite Index was up 1.1%.

The advances were paced by broker upgrades on Alcoa and Intel as well as a decision by the U.S. Congress to delay a new insurance tax, which led to a relief rally in health-care shares.

Health-care companies in the S&P 500 advanced 1.5%, the most among 10 groups. UnitedHealth rose 2.8% to US$32.41, and Aetna added 5% to US$34.15.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ dropped 5.03% to 20.59.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.28% to 77..99.

The dollar climbed as high as 91.01 yen, according to Reuters data, the highest level since early November on expectations that the U.S. Federal Reserve will increase interest rates sooner than traders previously forecast. It last traded at 90.93 yen, up 0.7 % on the day.

The euro fell 0.2 % to US$1.4318, close to Friday's low of US$1.4262 set on electronic trading platform EBS, its weakest since September 4.

Most U.S. primary government securities dealers expect the Fed to hike rates by the end of the first quarter of 2011, with only the most optimistic seeing an increase during the second quarter of 2010, according to a Reuters poll.

A bigger bet on the economy was taking place in the Treasury market.

The Treasury yield curve, a barometer of the health of the U.S. economy, widened to a record as investors bet an accelerating recovery will fuel inflation and hurt demand for unprecedented sales of government debt, Bloomberg News said.

The difference between 2- and 10-year Treasury note yields increased to 281.4 basis points before the government announces December 23 how much it plans to auction in 2-, 5- and 7-year securities next week. It rose from 145 basis points at the beginning of the year.

Businesswire.co.nz

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