(Bloomberg News) Stocks rallied, rebounding from last week's slump, and Treasuries retreated as European officials discussed plans to tame the region's debt crisis. Commodities reversed losses and the Dollar Index declined.
The Standard & Poor's 500 Index jumped 2.3 percent to close at 1,162.95 at 4 p.m. New York time. Ten-year U.S. Treasury note yields added six basis points to 1.90 percent, rising from near a record low. The S&P GSCI Index of commodities gained 0.2 percent, erasing an earlier drop of 2.6 percent, as oil halted a three-day slump. The Dollar Index lost 0.5 percent, while the euro fell against 12 of 16 major peers.
The European Central Bank is likely to debate restarting covered-bond purchases and may discuss interest-rate cuts to ease funding strains, a euro-region central bank official said. German Chancellor Angela Merkel's comments that leaders must erect a firewall around Greece prompted speculation about a European version of the U.S.'s Troubled Asset Relief Program after finance chiefs including U.S. Treasury Secretary Timothy F. Geithner urged more efforts to prevent contagion.
"Europe will come up with something," Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $278 billion. "I don't think we're going into a recession. Now is the time to be bullish, not the time to panic. The lows for the year are in."
Rebound After Plunge
The S&P 500 and Dow Jones Industrial Average rose for a second day. The Dow surged 272.38 points, or 2.5 percent, to 11,043.86 as it rebounded from last week's 6.4 percent drop, its biggest since October 2008. Financial and energy shares led the gain, with JPMorgan Chase & Co. surging 7 percent and Exxon Mobil Corp. climbing 3.5 percent. Class B shares of Berkshire Hathaway Inc., billionaire investor Warren Buffett's company, climbed 8.6 percent after announcing a buyback program.
Boeing Co. rose 4.2 percent as a delivery of the 787 Dreamliner ended more than three years of delays on the world's first jetliner with a fuselage made of carbon-fiber composites.
Last week's rout erased $1 trillion from U.S. equities, and wiped out about $3.6 trillion globally, amid concern Europe can't contain the damage from its government-debt crisis. The S&P 500 slumped 17 percent between April 29 and Sept. 23, leaving it trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, according to data compiled by Bloomberg.
The S&P 500 is down about 12 percent since the end of June, poised for its worst quarterly performance since 2008. Stocks are having the worst quarter on record relative to U.S. Treasuries and gold, which may force investors to buy equities to rebalance their allocations, JPMorgan Chase & Co.'s Marko Kolanovic said. U.S. and emerging-market equities have returned 43 percentage points less, the most during a quarter since at least 2002, according to data compiled by Kolanovic, whose analysis is based on a model portfolio composed of stocks, bonds and gold
A gauge of U.S. homebuilder stocks rose 2.7 percent even after new-home purchases in the U.S. slid in August to a six- month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties, a Commerce Department report showed. Another report showed U.S. economic activity fell in August. The Federal Reserve Bank of Chicago's national index, which draws on 85 economic indicators, was minus 0.43 in August versus 0.02 in July. A reading below zero indicates below-trend-growth in the national economy.
Bearish Options Trades
Equity-options show traders expect Europe's debt crisis to engulf the U.S. as contracts to protect against losses in the S&P 500 erase the gap with the euro region's benchmark gauge. The Chicago Board Options Exchange Volatility Index rose 33 percent last week to 41.25, bringing it within seven points of the 29-month high reached Aug. 8. The VIX, as the gauge is known, eliminated more than half the discount to Europe's VStoxx Index in the past week, cutting it to 7.3 points from 15 on Sept. 12, data compiled by Bloomberg show.
About five stocks gained for every two that fell in the Stoxx Europe 600 Index, which rebounded 1.9 percent after dropping 6.1 percent last week. BNP Paribas SA, UniCredit SpA and Deutsche Bank AG, the biggest lenders in France, Italy and Germany respectively, rose at least 4 percent.
'We Are There'
ECB Executive Board member Lorenzo Bini Smaghi said the ECB will do whatever is necessary to supply sufficient funds to European banks.
"For liquidity, we are there" and "we are ready to do what is needed," Bini Smaghi said in New York today. "''We need to reassure the markets.'' He also said the central bank doesn't expect a default by Greece.
The ECB is likely to debate restarting covered-bond purchases and more measures to ease monetary conditions next week, a euro-region central bank official said. Reintroduction of 12-month loans to banks will also be discussed at the ECB's Oct. 6 policy meeting, said the person, who spoke on condition of anonymity because the information is confidential. Interest- rate cuts are likely to be discussed, though they are not on the current agenda, the official said.
The yield on the Greek 10-year bond rose 43 basis points, driving the difference in yield with benchmark German bunds 35 basis points higher to 22.23 percentage points. Spanish 10-year yields slipped five basis points to 5.16 percent, while Italy's were little changed and rates on similar-maturity U.K., French and German debt increased.
A benchmark gauge of U.S. corporate credit risk fell for a second day. The Markit CDX North America Investment Grade Index, which typically falls as investor confidence improves and rises as it deteriorates, declined 3 basis point to a mid-price of 138 basis points, according to index administrator Markit Group Ltd.
The cost of insuring against default on European sovereign debt also retreated. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 1.7 basis points to 363.7, after earlier rising to a record.
Crude oil for November delivery gained 0.5 percent to $80.24 a barrel. Cattle and natural gas rallied more than 2.4 percent to lead gains among 15 of the 24 commodities tracked by the S&P GSCI Index.
Gold fell, capping the biggest three-session lump since 1983, and silver closed below $30 an ounce on investor sales to cover losses in other assets. Gold for December delivery fell 2.7 percent to settle at $1,594.80 an ounce and plunged 12 percent in three sessions.
The MSCI Emerging Markets Index declined 0.6 percent as benchmark indexes in China and South Korea slumped at least 1.1 percent. Thailand's SET Index tumbled 5.7 percent after the central bank said it may cut its economic growth forecasts.
Russia's Micex Index rose 1.5 percent after Prime Minister Vladimir Putin said he would run again for president next year.