Stocks rally on bank hopes
NEW YORK |
NEW YORK (Reuters) - Global stocks rallied on Wednesday after State Street Corp brightened the outlook for corporate earnings, while oil prices snapped a six-day slide on expectations U.S. crude inventories have fallen.
The bullish earnings forecast by State Street (STT.N), the world's second-largest custodian bank, lifted banking shares on both sides of the Atlantic and boosted Wall Street about 3 percent.
Shares of State Street jumped 10 percent after it forecast second-quarter operating earnings would climb 29 percent more than analysts' expectations. Banks rebounded from recent heavy losses, driving the KBW bank index .BKX up 5.5 percent.
Investors also scooped up industrials and technology stocks that have been beaten down recently, while higher crude prices boosted stocks in the energy sector.
"The reason why yesterday's rally fizzled was because we lacked solid leadership. Today, that is earnings," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.
"There is some confidence now that there will be more positive surprises than negative during the earnings season."
MSCI's all-country world equity index .MIWD00000PUS rose 1.6 percent, but its emerging market index .MSCIEF barely climbed out the red, rising 0.05 percent.
The Dow Jones industrial average .DJI closed up 274.66 points, or 2.82 percent, at 10,018.28. The Standard & Poor's 500 Index .SPX rose 32.21 points, or 3.13 percent, at 1,060.27. The Nasdaq Composite Index .IXIC gained 65.59 points, or 3.13 percent, at 2,159.47.
European shares reversed early losses in response to the State Street outlook and gained on optimism stress tests planned for banks in the euro zone and other countries might not be as bad as initially feared.
Europe named 91 banks taking part in a probe into the health of its banking system -- including many regional banks where markets suspect most of the sore spots -- as authorities seek to restore confidence in the sector.
The FTSEurofirst 300 .FTEU3 index of top European shares rose 1.5 percent to close at 1,006.01 points, capping a 4.1 percent rise over the past two sessions.
Oil rebounded, lifted by hopes of a strong earnings season and expectations that data to be released later Wednesday and on Thursday will show a drop in U.S. crude inventories.
U.S. crude settled up $2.09, or 2.9 percent, at $74.07 a barrel, its biggest percentage gain since June 25.
ICE Brent crude futures were up $2.06 at $73.51.
The rally in stocks drew investors into riskier assets and away from safe-haven government debt. U.S. Treasuries slid and Bund futures shed earlier gains to settle lower after the State Street outlook improved overall risk appetite.
The benchmark 10-year U.S. Treasury note traded down 16/32 in price to yield 2.99 percent, up from 2.94 percent late Tuesday.
Bund futures hit a session low of 129.12 as equities turned higher, but trading volumes were thin ahead of the European Central Bank's monthly meeting on Thursday.
"Bonds fell because U.S. and global investors appear to have more appetite for risk," said Lloyd McAdams, chairman and chief investment officer of Santa Monica-based Pacific Income Advisers, with $4.5 billion in assets under management.
The euro rose against the dollar in a late-day reversal in technical trading after breaking through resistance levels, which prompted some investors who had bet against the single currency to buy to prevent losses.
Concerns about the growth outlook for the global economy and plans to test the financial health of European banks had weighed on the euro for most of the session.
The euro was up 0.16 percent at $1.2643.
The dollar was down against a basket of major currencies, with the U.S. Dollar Index .DXY down 0.24 percent at 83.88.
Against the yen, the dollar was up 0.17 percent at 87.70.
Gold futures for August delivery finished $3.80 higher at $1,198.90 an ounce in New York.
Copper ended higher, reversing earlier losses and extending a bounce from last week's two-week low, with the help of a weaker dollar and the rally in equities.
Asian stocks slipped as investors worried that global growth was faltering, with the MSCI index of Asia Pacific shares outside Japan .MIAPJ0000PUS shedding 0.5 percent. Japan's Nikkei average .N225 ended down 0.6 percent.
(Reporting by Edward Krudy, Vivianne Rodrigues, Richard Leong in New York; Ian Chua, Ikuko Kurahone, Brian Gorman and Rebekah Curtis in London; writing by Herbert Lash; editing by Andrew Hay)
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