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Stocks, Oil Rise on Spain Budget, China Stimulus Bets

By Paul Dobson and Rita Nazareth
September 27, 2012 4:52 PM EDT 1 Comments
Share prices are displayed on an electronic monitor at the Tokyo Stock Exchange in Tokyo, Japan.
Photographer: Tomohiro Ohsumi/Bloomberg
Share prices are displayed on an electronic monitor at the Tokyo Stock Exchange in Tokyo, Japan.

Stocks rallied and commodities rebounded from a seven-week low as Spain pledged to cut its deficit and speculation grew that China’s government will do more to support economic growth. The dollar and Treasuries fell.

The MSCI All-Country World Index (MXWD) climbed 0.8 percent at 4:30 p.m. in New York, rebounding from its biggest drop since July. The Standard & Poor’s 500 Index advanced 1 percent, halting a five-day slump, and the Shanghai Composite Index jumped the most in three weeks. The S&P GSCI gauge of commodities gained 1.3 percent as oil rebounded, while the dollar weakened versus all 16 major peers. Spain’s 10-year bonds rose for the first time in three days, while U.S. notes halted the longest rally since 2008.

Equities extended gains as Spanish Prime Minister Mariano Rajoy’s government announced its fifth austerity package in what may be a move to head off tougher conditions as part of a potential European bailout. Stocks started the session higher as bets on more stimulus efforts from China overshadowed U.S. data signaling a slowdown in business spending and weaker-than- estimated second-quarter economic growth.

“People are still quite sensitive to news out of Europe and macro developments in general,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview. “Yes, people are encouraged by Spain’s austerity package. On the other hand, one does wonder what cuts will mean for growth. There’s also been speculation of Chinese stimulus,” he said. “Anything that could boost the economy would be viewed positively.”

The S&P 500 snapped the longest losing streak since July. The index as of yesterday had erased all its gains since the Federal Reserve said Sept. 13 that it will undertake a third round of so-called quantitative easing and probably hold the federal funds rate near zero until at least the middle of 2015.

Market Movers

Newmont Mining Co. and Freeport-McMoRan Copper & Gold Inc. paced gains in commodity shares, rising more than 2 percent. Goodyear Tire & Rubber Co. (GT), the largest U.S. tiremaker, rallied 3.9 percent as Goldman Sachs Group Inc. advised buying the shares. Discover Financial Services surged 7.3 percent after the credit-card company posted profit that beat analyst estimates as fewer loans soured. Bank of America Corp. and JPMorgan Chase & Co. rose more than 1 percent.

General Electric Co., the world’s largest maker of jet engines and diesel locomotives, climbed 2.9 percent and led gains in the Dow Jones Industrial Average after raising its forecast for profit growth at its industrial units.

Stocks opened higher even after government data showed the U.S. economy expanded at a 1.3 percent pace in the second quarter, down from a previously estimated 1.7 percent. The National Association of Realtors’ index of pending home resales dropped 2.6 percent, showing the recovery in the housing market will be uneven.

Economic Data

Orders for non-defense capital equipment excluding airplanes rose 1.1 percent after decreases of 5.2 percent in July and 2.7 percent in June, the Commerce Department reported. Total orders for durable goods, those meant to last at least three years, plunged 13 percent, the most since January 2009, paced by a decline in demand for civilian aircraft.

Applications for jobless benefits decreased 26,000 to 359,000 in the week ended Sept. 22, the lowest since July, Labor Department figures showed. Economists forecast 375,000 claims, according to the median estimate in a Bloomberg survey.

The S&P 500 has rallied almost 3 percent in September, poised for a fourth straight monthly gain, and is up more than 6 percent in the third quarter.

Over the last 20 years, October has been the third best month for the Dow behind November and April, according to data compiled by Bespoke Investment Group. The 30-stock gauge has risen an average 1.8 percent with positive returns 70 percent of the time, the study shows.

Treasury Auction

Ten-year Treasury yields increased almost five basis points to 1.65 percent after falling for eight straight days, reducing the rate by 26 basis points during the stretch.

An auction of $29 billion of U.S. seven-year notes today yielded 1.055 percent, compared with a forecast of 1.064 percent in a Bloomberg News survey of six of the Federal Reserve’s 21 primary dealers. The sale’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.61, the lowest in 11 months and below the 2.82 average for the past 10 auctions.

European Markets

The Stoxx Europe 600 Index (SXXP) climbed 0.3 percent, rebounding from yesterday’s 1.8 percent tumble. Opap SA rallied 3 percent as Greece called a tender to sell a 33 percent stake in the country’s biggest gambling company. Hennes & Mauritz AB declined 5.8 percent after Europe’s second-largest clothing retailer reported third-quarter profit that missed analysts’ estimates.

The Stoxx 600 has climbed more than 8 percent since the end of June, on course for the biggest quarterly gain this year.

Spain’s 10-year bond yield dropped 12 basis points to 5.95 percent today. Rajoy’s Cabinet approved a new tax on lottery winnings and a cut in ministries’ spending to shrink the euro area’s third- biggest budget deficit. The 2013 target is 4.5 percent of gross domestic product compared with a 6.3 percent goal for this year. He’s risking a deeper recession while an unemployment rate of 25 percent stokes mounting protests.

Corporate Debt

The cost of insuring European corporate debt fell for the first time in four days, tumbling from the highest in a month. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies dropped 19 basis points to 562, heading for a fourth monthly decline.

The dollar weakened against all 16 major peers, losing the most versus the currencies of New Zealand, Australia and Sweden. The pound climbed 0.5 percent to $1.6239, halting a three-day decline, after the U.K. economy shrank less than previously estimated in the second quarter and disposable incomes rose the most since 2009.

The S&P GSCI rebounded after falling yesterday to the lowest since Aug. 6. Coffee, oil and silver rallied at least 2.2 percent to pace gains in 19 of 24 commodities tracked by the index. Oil in New York climbed 2.1 percent, the most in eight weeks, to $91.85 a barrel after yesterday dipping below $90 for the first time since August.

Oil VIX

Costs to protect against losses in oil jumped to a 16-month high compared with U.S. stocks, a sign the slowing economic recovery may be a greater risk to energy demand than to share prices.

The Chicago Board Options Exchange Crude Oil Volatility Index, tracking 30-day options on the United States Oil Fund LP, reached a two-month high of 36.58 on Sept. 19. The same day, the ratio between the oil gauge and the CBOE Volatility Index, or VIX, for equities rose to its highest since May 2011. The VIX plunged 12 percent today to 14.84, and the oil volatility gauge slid 5.9 percent.

The Shanghai Composite rallied 2.6 percent and the CSI 300 rose 3.1 percent. The Shanghai Securities News said there was speculation the government would announce market-boosting measures. China’s central bank added a net 365 billion yuan ($58 billion) to the financial system this week, the highest in Bloomberg data going back to 2008, as cash demand rose before a week-long holiday next week.

To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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