S&P 500 reaches four-year high, Treasuries fall on Europe plan

September 6, 2012 11:59 AM

The Standard & Poor’s 500 Index jumped to the highest level since January 2008 and Treasuries fell as the European Central Bank announced a bond-buying plan and reports fueled optimism in the U.S. economy. Spanish and Italian debt surged.

The S&P 500 rallied 2 percent to 1,432.09 at 4 p.m. in New York and the Stoxx Europe 600 Index surged 2.3 percent, the best gains in more than a month for both. The euro increased 0.3 percent to $1.2640, while Italy’s 10-year yields fell 25 basis points and the rate on similar-maturity Spanish debt lost 38 basis points, while 10-year U.S. yields increased eight points to 1.67 percent. Oil pared earlier gains while gold climbed to the highest price since March.

ECB President Mario Draghi said policy makers agreed to an unlimited bond-purchase program to reduce interest rates for struggling nations and fight speculation of a breakup of the euro. U.S. jobless claims declined last week and companies added more workers than forecast in August, reports showed today before monthly payrolls data tomorrow. A gauge of American service industries topped economists’ estimates.

“The market was looking for signs that the ECB and some part of the European Union would basically stimulate in Europe and guarantee the sovereign debt,” David Pearl, who oversees $24 billion in assets as co-chief investment officer at New York-based Epoch Investment Partners, said in a phone interview. “Draghi pretty much gave what the market was looking for. The U.S. data is at least moving positively and we’re in a recovery.”

Draghi’s Plan

The ECB’s bond-buying plan is the most ambitious yet in the central bank’s fight to wrest back control of rates in a fragmented economy and save the euro after nearly three years of turmoil. The central bank reserved the right to terminate bond purchases if governments don’t fulfill their part of the bargain, Draghi said.

The S&P 500 in August had reached its highest level on an intraday basis in more than four years, then failed to close at that milestone. The index has risen almost 14 percent this year as European leaders worked to tame the region’s debt crisis and the Federal Reserve vowed to safeguard the economic recovery. Fed Chairman Ben S. Bernanke said in Jackson Hole, Wyoming, last week he wouldn’t rule out more stimulus.

Today’s gain was the first of the week for the S&P 500. Gauges of financial, commodity and technology companies helped lead gains in the 10 main industry groups in the index. Bank of America Corp., JPMorgan Chase & Co. and Cisco Systems Inc. surged more than 4 percent and were among the biggest advances in the Dow Jones Industrial Average, which jumped as much as 244 points.

Market Movers

The Nasdaq-100 Index surged to its highest level since December 2000. Chipmakers SanDisk Corp. and Micron Technology Inc. helped lead gains after OCZ Technology Group Inc., a maker of disk drives, said it experienced a shortage of Nand flash memory. OCZ tumbled after preliminary second-quarter sales missed the company’s forecast because of the supply constraints.

As stocks rallied, costs to protect against declines slid. The Chicago Board Options Exchange Volatility Index, the benchmark equity-options gauge known as the VIX, sank 12 percent to 15.69. Europe’s VStoxx Index, a measure of Euro Stoxx 50 Index option prices, sank 16 percent to 23.11 for its biggest drop since October.

Jobs Data

Companies in the U.S. added 201,000 workers in August, according to figures from ADP Employer Services. The median estimate in a Bloomberg survey called for an increase of 140,000. Jobless claims decreased by 12,000 to 365,000 in the week ended Sept. 1, the fewest in a month, the Labor Department reported. The government’s employment report tomorrow is projected to show an increase of 142,000 private-sector jobs in August, not enough to lower the jobless rate from 8.3 percent.

The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, climbed to 53.7 last month following July’s 52.6 reading, topping the median forecast of 52.5 in a Bloomberg survey of economists. A reading greater than 50 signals expansion.

European Markets

All 19 industry groups in the Stoxx Europe 600 Index rose. UniCredit SpA and Societe Generale SA led gains in banks, climbing more than 7 percent. Lonmin Plc, the platinum producer whose main mine has been shut since Aug. 10 because of a strike that led to 44 deaths, surged 7.3 percent after agreeing to open wage talks with labor unions. Whitbread Plc jumped 5.3 percent after sales climbed at the hotel and restaurant company.

Italy’s 10-year yield slid to 5.26 percent, a five-month low, and the rate on Spain’s bond declined to 6.03 percent, the lowest since June. German 10-year yields increased eight basis points to 1.56 percent.

The S&P GSCI gauge of commodities advanced 0.4 percent, paring a gain of as much as 1.4 percent. Wheat jumped more than 2.6 percent to lead gains in commodities, while oil pared an earlier rally of as much as 2.5 percent to settle up 17 cents at $95.53 a barrel.

Gold futures for December delivery climbed 0.7 percent to $1,705.60 an ounce, the highest level since March. Gold will be at $1,840 an ounce by the end of the year, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg Television interview. The bank is “modestly bullish” on commodities, he said.

Emerging Markets

The MSCI Emerging Markets Index added 1.2 percent, its biggest gain since Aug. 6. The Shanghai Composite Index climbed 0.7 percent as railway companies rallied after a government agency approved subway plans for 18 cities. Russia’s Micex jumped 2.4 percent and India’s Sensex climbed 0.2 percent. Benchmark gauges in South Africa, Poland and Brazil gained at least 1.2 percent.

Malaysia’s equity index sank 1.4 percent amid concern loan growth will slow and as palm oil prices declined. The Hungarian forint weakened against 15 of 16 major peers after the nation rejected conditions set by the International Monetary Fund for a loan.

Bloomberg News

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