Wednesday, October 5, 2011

US stocks stage late rally; euro up on Bernanke

NEW YORK:'' A late rally in U.S. stocks pulled Wall Street out of bear market territory on Tuesday, Oct 4, and the euro rose versus the dollar after Federal Reserve Chairman Ben Bernanke promised more economic stimulus if needed.

Investors considered that Bernanke's speech to Congress left the door open to another round of quantitative easing policies, easing concerns about the economic implications of a possible Greek default.

It also reduced the safe-haven appeal of U.S. government bonds and the dollar, allowing the euro to rally more than 1 percent.

The S&P 500 Index, a broad measure of the U.S. stock market, had briefly entered bear market territory earlier in the session when it fell 20 percent from its 2011 high. A bear market is usually a sign that stock losses may be sustained for a longer period of time.

The steep losses eventually attracted bargain hunters, who massively stepped into the market in the final hour of trading to buy, particularly chip makers and large-cap techs.

"We're buying some stocks, sticking to companies with strong balance sheets, with global if not emerging market focus, certainly not in the financial services area," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

"We're looking for opportunities to buy for holding at reduced prices," she said. "The sad fact is that we don't know what tomorrow brings."

Market volatility will likely remain high while the euro- zone debt crisis keeps dragging on investor sentiment. After markets closed, ratings agency Moody's downgraded Italy by three notches, increasing fears of contagion from Greece.

Athens appeared more likely to default on its debt after euro-zone finance ministers postponed a vital aid payment to Athens until mid-November.

The impact of a possible default on the global economy and particularly on the banking sector worried markets after European Union ministers said they were reviewing the size of private-sector involvement in a second bailout package for Greece.

The three major U.S. stock indexes had fallen more than 2 percent earlier in the day, but recovered after Bernanke's speech.

The Dow Jones industrial average closed up 153.41 points, or 1.44 percent, at 10,808.71, while the Standard & Poor's 500 Index rose 24.72 points, or 2.25 percent, to 1,123.95. The Nasdaq Composite Index climbed 68.99 points, or 2.95 percent, to 2,404.82.

The U.S. bank sector index, down nearly 30 percent since the 2011 market high hit on April 29, posted strong gains. The index finished the session up 4.1 percent as shares of Morgan Stanley jumped 12.3 percent.

The MSCI All-Country World index, a gauge of world stocks, trimmed losses, but still fell 0.3 percent.


U.S. crude oil prices slid $1.94, or 2.5 percent, to close at $75.67 a barrel, the lowest settlement since Sept. 23, 2010, on fears that a global slowdown will curb demand for oil and other commodities.

The euro, however, rallied 1.27 percent against the dollar to $1.3347, after hitting a near nine-month low against the greenback earlier in the session.

"This is just a correction in a euro bear market," said Jay Meisler, co-founder of in Huntington, New York.

"Part of the rally could be traced to Trichet as well," he added, in reference to the president of the European Central Bank, Jean-Claude Trichet. "He could have signaled a rate cut today, but he did not. So you've got to go on the assumption that the ECB is not going to cut rates this week."

The ECB's policy-makers are to meet on Thursday. There have been expectations in markets that the ECB would raise rates on Thursday.

In the government debt market, longer-dated Treasuries led the losses, with the 30-year bond falling 1-26/32 points in price for a yield of 2.807 percent. - Reuters

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