Global shares rally on earnings hopes; U.S. dollar gains

NEW YORK Tue Jul 9, 2013 5:25pm EDT

1 of 6. Traders work on the floor of the New York Stock Exchange shortly after the opening of the markets in New York July 3, 2013.

Credit: Reuters/Lucas Jackson

NEW YORK (Reuters) - Global equity markets extended gains on Tuesday and the dollar hit a three-year high, spurred by an optimistic tone among investors after a good start to the U.S. earnings season and last week's strong U.S. June jobs data.

Investors were inclined to bet companies will surpass the low bar that has been set for earnings, hoping for better-than-expected results that could fuel future gains.

Adding to the optimism, the pace of hiring by U.S. employers increased in May, the Labor department said in a report that was a positive sign for the American job market.

Equity markets initially responded favorably to aluminum producer Alcoa (AA.N), traditionally the first major U.S. company to report quarterly earnings, after it posted encouraging results late on Monday.

Nine of the S&P's 10 industry sector indexes were higher. Industrial and material shares logged the biggest gains, though Alcoa closed down 0.01 percent at $7.91 a share after opening higher. Alcoa said it sees solid growth in global demand this year.

The benchmark S&P 500 index ended the session 1 percent below its all-time closing high of 1,669.16 reached on May 21.

"Whether we go through the 1,650 level is key, and if we do then we probably get a retest of the May highs," said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania.

The Dow Jones industrial average .DJI closed up 75.65 points, or 0.50 percent, at 15,300.34. The Standard & Poor's 500 Index .SPX rose 11.86 points, or 0.72 percent, at 1,652.32. The Nasdaq Composite Index .IXIC was up 19.43 points, or 0.56 percent, at 3,504.26.

According to Thomson Reuters data through early Tuesday, analysts' expectations are for earnings of S&P 500 companies to rise 2.9 percent in the second quarter from a year ago, while revenue is forecast to increase 1.5 percent in the period.

Of the 23 companies in the S&P 500 that have reported results, 65.2 percent have beaten analyst expectations, 21.7 percent reported earnings in line with expectations and 13.0 percent reported results that were below expectations.

"I would think that the trend is going to be up," said Jeff Meyerson, head of trading for Sunrise Securities in New York. "We could at any time have a substantial correction again, but I think we still have a trend that's doing OK. That will be determined by how the earnings come out in the next few weeks."

Miners powered European shares to their highest close in a month, boosted by adjusted profit and revenue at Alcoa that were above expectations and helped to buoy sentiment in the sector.

Comment from Deutsche Bank also helped basic resource stocks, which are still down 27.7 percent on the year on earnings worries.

"There are seeds of recovery out there now that were not there a year ago," said Robert Quinn, chief European equity strategist at Standard & Poor's Capital IQ. "I think we are pretty close to a turning point in earnings downgrades for European companies."

The FTSEurofirst 300 index .FTEU3 of leading European companies hit its highest in a month before paring some gains as a deal to provide Greece the latest 6.8 billion euro ($8.7 billion) installment of its bailout bolstered the upbeat mood. The broad regional index rose 0.79 percent to close at 1,188.95.

MSCI's all-country world equity index .MIWD00000PUS rose 0.75 percent.

Greece's aid deal helped Greek and Portuguese bonds <GVD/EUR> add to their gains of the last few days. It also helped lift the euro off the seven-week low it has been at since the European Central Bank made clear last week it is prepared to cut interest rates again.

The euro had dropped to a session low against the dollar after ratings agency Standard & Poor's lowered Italy's sovereign credit rating. The euro fell as low as $1.2754, a three-month low, and was last down 0.68 percent at $1.2781.

The dollar rose toward recent three-year highs against a basket of currencies, with more investors betting on further gains as the Federal Reserve prepares to reduce its stimulus program.

The dollar's biggest gains were against the British pound after weaker-than-expected UK data drove sterling close to a three-year low and highlighted the divergence between UK and U.S. monetary policy. <GBP/>

The dollar index .DXY, which measures the greenback against a currency basket, was up 0.53 percent at 84.636.

The euro found some support after Greece secured aid that will prevent it from defaulting in August, but comments by European Central Bank policymaker Joerg Asmussen weighed.

U.S. Treasuries prices held steady as investors prepared to make room for a $32 billion three-year note sale, the first part of this week's $66 billion in coupon-bearing supply.

The 10-year U.S. Treasury note was unchanged in price to yield 2.677 percent.

Trading in Brent and U.S. crude futures contracts was lackluster for most of the session on thin volume, with late-day gains fueled by a stock market advance. Trade was lower early in the session as worries about supply disruptions in the Middle East kept investors wary.

Brent settled up 38 cents at $107.81 a barrel. U.S. crude rose 39 cents to settle at $103.53 a barrel.

After the oil price settlement, U.S. crude jumped more than 1 percent on the release of American Petroleum Institute data showing crude inventories fell by 9 million barrels, against expectations for a 3.3 million barrel draw. <API/S>

U.S. light crude futures rose to a high of $104.76.

(Additional reporting by Marc Jones in London; Editing by Chizu Nomiyama and Dan Grebler)

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