U.S. Indexes Surge, Led by Bank Shares

U.S. Indexes Surge, Led by Bank Shares
Copyright By REUTERS
Published: July 7, 2010
http://www.nytimes.com/2010/07/08/business/08markets.html?hp


Wall Street indexes closed higher for a second day on Wednesday, something traders have not seen in more than two weeks.

The three major indexes closed up nearly 3 percent, rising on a brighter outlook for banks on both sides of the Atlantic. Oil prices also snapped a six-day slide on an expected fall in crude inventories in the United States.

A higher earnings outlook from the State Street Corporation, the world’s No. 2 custodian bank, helped to lift Wall Street. European shares closed higher, while Asian markets declined.

Worries about the strength of economic recovery were offset after State Street said it would post second-quarter operating earnings of 93 cents a share, compared to forecasts of 72 cents a share.

“Having a bank give this kind of pre-announcement is very encouraging,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “It’s giving a more positive tone to the market in general.”

Nick Kalivas, an analyst at MF Global in Chicago, said investors were starting to reposition ahead of earnings season next week, and the State Street forecast reinforced expectations that banks would perform well, without exposure to trading.

At the close, the Dow Jones industrial average gained 274.66 points, or 2.82 percent, to 10,018.28. The Standard & Poor’s 500-stock index added 32.21 points, or 3.1 percent, to 1,060.27, and the Nasdaq added 65.59 points or 3.1 percent, to 2,159.47.

State Street gained 10.2 percent while one rival custody bank, the Bank of New York Mellon, rose 6 percent, and another, the Northern Trust Corporation, rose 6.8 percent.

Among other banks, Citigroup rose 2.77 percent; Bank of America, 4.2 percent; JPMorgan Chase, 4.9 percent; and Wells Fargo, 5.8 percent, all in New York trading.

In European trading, Spanish banks were among the top gainers, with Banco Santander up 6.5 percent, and BBVA 6.3 percent. Bankinter, Banco de Valencia and Popular rose from 9.3 to 12.4 percent.

Others to rise included Barclays BNP Paribas, Deutsche Bank , Société Générale and UniCredit, which all rose from 4.8 percent to 7.1 percent.

The Committee of European Bank Supervisors was expected to outline its methodology for a stress test to simulate the impact of a severe economic shock on about 100 banks in the euro zone and other countries, sources said.

Analysts also took a benign view of a slide in German manufacturing orders for the first time this year in May. They said it was mostly a technical correction as industrial production in Europe’s largest economy continued to recover.

In addition to the stress tests, the European Parliament on Wednesday approved one of the world’s strictest crackdowns on exorbitant bank pay, going beyond some of the limits that many banks were pressed to adopt in the wake of the financial crisis.

Bankers in the 27-nation bloc will be barred from taking home more than 30 percent of their bonus in cash starting next year, and risk losing some of the remainder if the bank’s performance erodes over the next three years. Banks that do not curb the salaries of their biggest earners will have to set aside more capital to make up for the risk.

Material shares also contributed to Wednesday’s surge. The aluminum producer Alcoa — which kicks off earnings season next week — rose 1.9 percent , while Dow Chemical was up 3.9 percent and DuPont rose 2.5 percent.

Treasury prices fell, pushing the 30-year bond down a point, as a stock rally lured buyers away from safe-haven government debt. The 30-year Treasury bond’s yield rose to 3.94 percent from 3.89 percent on Tuesday.

In Europe, the FTSE 100 in London was 49.82 points or 1 percent, higher at 5,014.82. The DAX in Frankfurt rose 0.87 percent, and the CAC-40 in Paris added 1.75 percent.

The euro was at $1.2638 after settling at $1.2620 on Tuesday.

Oil prices rose after six straight sessions of losses, lifted by hopes of a strong earnings season and expectations stock data will show a drop in crude inventories in the United States.

Crude was up $2.19, or 3.04 percent, to $74.17 a barrel, having fallen to $71.44 earlier.

Weekly data from the industry group, American Petroleum Institute, on Wednesday and the Energy Information Administration due on Thursday are expected to show a sizable draw on crude oil stocks.

“I think we’re pricing in a draw, that’s definitely a supportive factor,” said Phil Flynn, analyst at PFGBest Research in Chicago. “And the stock market is up today. When you get a bit of economic optimism, people think we’re going to need more oil.”

Asian stocks slipped as investors worried that global growth was faltering, with the MSCI index of Asia Pacific shares outside Japan shedding almost 1 percent. Japan’s Nikkei average ended down 0.6 percent.