NEW YORK: Global stocks rose on Friday, July 23 on solid corporate earnings while the euro gained against the dollar after fewer-than-expected European banks failed stress tests.
Safe-haven assets such as gold and U.S. Treasuries dropped after European regulators reported that only seven of 91 banks failed the tests, which were designed to show the impact of Europe's sovereign debt crisis on its financial institutions.
The market recovery seemed fragile, however. Some analysts questioned the credibility of the tests after regulators revealed they were applied only to the bank's trading books -- not their banking books.
Under the worst stress scenario, the seven weaker banks -- five of them from Spain -- would face a capital shortfall of 3.5 billion euros ($4.5 billion).
"The market expectation was that you were going to have about 10 bank failures -- two from Germany, one from Greece and about six from Spain -- and capital shortfalls totaling at least 100 billion euros," said Cary Leahey, an economist at Decision Economics in New York.
A larger number of failures, Leahey added, would have added credibility to the tests.
Other analysts bet the positive results will calm down investors and let them focus on some recent positive economic and corporate data.
"Despite questions about transparency and how the Euro stress tests don't measure up to the U.S. tests last year, I think these tests will start to put these Euro-zone concerns behind us," said Chris Rupkey, chief financial economist with the Bank of Tokyo-Mitsubishi in New York.
Investors' optimism increased following solid second-quarter results from major U.S. companies, including Microsoft and Ford. Data showing Germany's business sentiment jumped in July to its highest level in three years also supported markets.
World stocks measured by the MSCI All-Country World Index advanced 0.69 percent in late trading on Friday.
Before the stress test results were announced, the FTSEurofirst 300 index of top European shares rose 0.48 percent to close at 1,044.31.
On Wall Street, each of the three major U.S. stock indexes finished Friday's session about 1 percent higher with the Nasdaq edging back into the black for the year. At the close, the Nasdaq had erased its 2010 losses.
In early afternoon, the Dow industrials briefly turned positive for the year and then gave up some of those gains.
The Dow Jones industrial average climbed 102.32 points, or 0.99 percent, to end at 10,424.62 -- just about 4 points shy of its close at the end of 2009. The Standard & Poor's 500 Index rose 8.99 points, or 0.82 percent, to finish at 1,102.66 -- or about 13 points below its year-end 2009 close.
The Nasdaq Composite Index gained 23.58 points, or 1.05 percent, to close at 2,269.47.
Shares of General Electric Co climbed 3.29 percent to $15.71 after the company raised its dividend by 20 percent and resumed a share-buyback program it had halted in September, 2008.
Shares of Microsoft dipped 0.12 percent to close at $25.81 even after the company's stronger-than-expected results. Ford's stock jumped 5.2 percent to $12.72.
EURO REBOUNDS
The euro gained 0.19 percent to $1.2913 late in the afternoon, after a very volatile session. Initially, the euro had fallen as the results of the stress tests came out.
Investors remained cautious however, taking the results of the stress tests with a grain of salt.
"There's definitely suspicion out there about these tests, but the euro is coming off a very good week, thanks to solid economic data, and that's lending support," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
Against the Japanese yen, the greenback gained 0.54 percent to 87.38.
The dollar, which had lured investors earlier in the session with its safe-haven appeal, gave up some of those gains against a basket of major currencies late in the afternoon. By the end of the day, the U.S. Dollar Index was down 0.10 percent at 82.516 -- off its session high at 83.028.
U.S. crude oil futures fell 32 cents, or 0.4 percent, to settle at $78.98 a barrel. Earlier, U.S. oil futures reached an 11-week high at $79.60. Oil's decline from that high tracked the release of the stress test results, but the market found support in the temporary loss of some Gulf of Mexico oil production as Tropical Storm Bonnie made its way across south Florida.
As stocks gained, the 10-year U.S. Treasury note fell 17/32 in price, with the yield rising to 3 percent.
U.S. August gold futures fell $7.80 to settle at $1,187.80 an ounce as global risk aversion declined. - Reuters
Safe-haven assets such as gold and U.S. Treasuries dropped after European regulators reported that only seven of 91 banks failed the tests, which were designed to show the impact of Europe's sovereign debt crisis on its financial institutions.
The market recovery seemed fragile, however. Some analysts questioned the credibility of the tests after regulators revealed they were applied only to the bank's trading books -- not their banking books.
Under the worst stress scenario, the seven weaker banks -- five of them from Spain -- would face a capital shortfall of 3.5 billion euros ($4.5 billion).
"The market expectation was that you were going to have about 10 bank failures -- two from Germany, one from Greece and about six from Spain -- and capital shortfalls totaling at least 100 billion euros," said Cary Leahey, an economist at Decision Economics in New York.
A larger number of failures, Leahey added, would have added credibility to the tests.
Other analysts bet the positive results will calm down investors and let them focus on some recent positive economic and corporate data.
"Despite questions about transparency and how the Euro stress tests don't measure up to the U.S. tests last year, I think these tests will start to put these Euro-zone concerns behind us," said Chris Rupkey, chief financial economist with the Bank of Tokyo-Mitsubishi in New York.
Investors' optimism increased following solid second-quarter results from major U.S. companies, including Microsoft and Ford. Data showing Germany's business sentiment jumped in July to its highest level in three years also supported markets.
World stocks measured by the MSCI All-Country World Index advanced 0.69 percent in late trading on Friday.
Before the stress test results were announced, the FTSEurofirst 300 index of top European shares rose 0.48 percent to close at 1,044.31.
On Wall Street, each of the three major U.S. stock indexes finished Friday's session about 1 percent higher with the Nasdaq edging back into the black for the year. At the close, the Nasdaq had erased its 2010 losses.
In early afternoon, the Dow industrials briefly turned positive for the year and then gave up some of those gains.
The Dow Jones industrial average climbed 102.32 points, or 0.99 percent, to end at 10,424.62 -- just about 4 points shy of its close at the end of 2009. The Standard & Poor's 500 Index rose 8.99 points, or 0.82 percent, to finish at 1,102.66 -- or about 13 points below its year-end 2009 close.
The Nasdaq Composite Index gained 23.58 points, or 1.05 percent, to close at 2,269.47.
Shares of General Electric Co climbed 3.29 percent to $15.71 after the company raised its dividend by 20 percent and resumed a share-buyback program it had halted in September, 2008.
Shares of Microsoft dipped 0.12 percent to close at $25.81 even after the company's stronger-than-expected results. Ford's stock jumped 5.2 percent to $12.72.
EURO REBOUNDS
The euro gained 0.19 percent to $1.2913 late in the afternoon, after a very volatile session. Initially, the euro had fallen as the results of the stress tests came out.
Investors remained cautious however, taking the results of the stress tests with a grain of salt.
"There's definitely suspicion out there about these tests, but the euro is coming off a very good week, thanks to solid economic data, and that's lending support," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
Against the Japanese yen, the greenback gained 0.54 percent to 87.38.
The dollar, which had lured investors earlier in the session with its safe-haven appeal, gave up some of those gains against a basket of major currencies late in the afternoon. By the end of the day, the U.S. Dollar Index was down 0.10 percent at 82.516 -- off its session high at 83.028.
U.S. crude oil futures fell 32 cents, or 0.4 percent, to settle at $78.98 a barrel. Earlier, U.S. oil futures reached an 11-week high at $79.60. Oil's decline from that high tracked the release of the stress test results, but the market found support in the temporary loss of some Gulf of Mexico oil production as Tropical Storm Bonnie made its way across south Florida.
As stocks gained, the 10-year U.S. Treasury note fell 17/32 in price, with the yield rising to 3 percent.
U.S. August gold futures fell $7.80 to settle at $1,187.80 an ounce as global risk aversion declined. - Reuters
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