U.S. earnings boost stocks, Greek woes limit euro

NEW YORK Tue Feb 2, 2010 5:46pm EST

A woman looks at an electronic board with stocks information at a brokerage house in Hefei, Anhui province January 12, 2010. REUTERS/Stringer

A woman looks at an electronic board with stocks information at a brokerage house in Hefei, Anhui province January 12, 2010.

Credit: Reuters/Stringer

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NEW YORK (Reuters) - Stocks rallied on upbeat earnings and economic data on Tuesday, while European shares advanced, helped by miners benefiting from Australia's interest rate policy.

Investors sold some of their U.S. dollars, venturing out of the perceived safe-haven, thereby giving commodities a boost as their costs fall with the weakness in the greenback.

European government credit markets were in limbo until the European Commission gives its verdict on Greece's budget plans, due on Wednesday.

Greece's finance minister didn't help when he said Athens' problems were a euro zone issue and other countries could follow Greece, causing 10-year bond yield spreads over bunds in Greece as well as Portugal, Ireland, Spain and Italy to widen.

In New York the benchmark S&P 500 stock index recorded its best two-day run-up since October. The Standard & Poor's 500 stock index rose 1.3 percent, to 1,103.32 and the Dow Jones Industrial average gained 1.09 percent, to 10,296.85.

The MSCI world equity index was up 1.29 percent at 292.26, ricocheting off a three-month low.

Encouraging earnings reports from U.S. economic bellwether United Parcel Service and industrial conglomerate Emerson Electric Co helped fuel the U.S. rally.

"The earnings season in terms of companies beating estimates has been very positive, among the strongest quarters we've had since the early 1990s," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

But fourth quarter earnings comparisons are easy given the financial crisis was at its height a year ago and companies launched massive cost cutting measures.

The financial sector is expected to lead the advance, rising 73 percent versus a year earlier. Strip out financial sector results and earnings are only expected to rise 15 percent, according to Thomson Reuters data.

Pending sales of U.S. homes edged up as expected in December, helping calm fears of renewed weakness in the troubled housing sector.

In Europe, share prices rose for a third straight day, boosted by mining companies which benefited from the Reserve Bank of Australia's surprise decision to hold its key cash rate steady.

The pan-European FTSEurofirst 300 index of top shares closed up 0.9 percent at 1,027.18 points.

Japan's benchmark Nikkei 225 stock index rose 1.6 percent, led by Toyota Motor Corp's 4.49 percent rise after announcing plans to fix millions of recalled vehicles.

Crude oil prices rose 3.51 percent to $77.04 a barrel on hopes energy demand in China and the United States will grow. Gold hit a two-week high of $1,117.95 before slipping back to $1,114.95, up $9.05 on the day.

DOLLAR WEAKENS

The dollar fell against a basket of major trading-partner currencies, with the U.S. dollar index down 0.29 percent at 79.011.

The euro fell back from its highs, trading nearly flat against the greenback at $1.3962 while the dollar tipped just slightly lower against the yen at 90.36.

Greece's fiscal woes contributed to a cap on the euro.

The premium investors demand to hold 10-year Greek government bonds over German Bunds initially fell to a session low of 326 basis points but ended the day up 23 bps to 359 bps, still well below last week's euro era highs of 405 bps.

The Aussie dollar fell to a low of US$0.8780 before paring losses to trade at US$0.8865, down 0.6 percent.

"The fact that the RBA did not raise rates is a reflection of a growing view that the global economy is not out of the woods yet," said John McCarthy, director of foreign exchange trading at ING Capital Markets in New York.

White House adviser Paul Volcker defended the administration's proposal to limit risk-taking by big banks before the Senate Banking Committee.

U.S. benchmark 10-year Treasuries rose modestly, up 5/32 in price, pushing the yield down 3.63 percent.

(Additional reporting by Atul Prakash, Neal Armstrong, Naomi Tajitsu and Tricia Wright in London; Gertrude Chavez-Dreyfuss, Nick Olivari, Caroline Valetkevitch and Angela Moon in New York; Editing by Kenneth Barry)

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