October 18, 2011 / 12:50 AM / 8 years ago

Global stocks, euro end up on European deal optimism

NEW YORK (Reuters) - World stocks and the euro edged higher, while the S&P 500 jumped 2 percent on Tuesday following another report on deals to bolster the euro zone’s rescue fund.

Brent crude oil prices also rebounded to end higher after touching a one-week low.

Britain’s Guardian newspaper reported France and Germany have reached a deal to enlarge the euro zone bailout fund to 2 trillion euros ($2.76 trillion) in a bid to contain the region’s debt crisis. The rescue fund, known as European Financial Stabilization Facility (EFSF), is currently worth 440 billion euros.

The news overshadowed concerns about slower-than-expected third-quarter growth in China and a warning by Moody’s Investors Service to France over risks to maintaining its top credit rating.

Financials led gains on Wall Street following earnings results from Bank of America (BAC.N) and other big banks.

Shares of Bank of America, the second-largest U.S. bank by assets, bounced 10.1 percent to $6.64 after the bank reported a quarterly profit. Shares of Goldman Sachs (GS.N) rose 5.5 percent to $102.25 even after it reported a wider-than-expected quarterly loss.

The Dow Jones industrial average .DJI gained 180.05 points, or 1.58 percent, to end at 11,577.05. The Standard & Poor's 500 Index .SPX was up 24.52 points, or 2.04 percent, at 1,225.38. The Nasdaq Composite Index .IXIC was up 42.51 points, or 1.63 percent, at 2,657.43.

The MSCI world equity index .MIWD00000PUS ended up 0.21 percent, reversing sharp earlier losses.

The U.S. KBW bank index .BKX rose 6.1 percent, its biggest daily percentage gain since August 11, while trading volume for the Direxion Financial Bull 3X ETF (FAS.P) jumped to its highest since April 2010.

Despite the report on euro zone talks, many investors were skeptical about the chances of a quick resolution to region’s problems.

“That would be what the market’s been looking for, and 2 trillion euros seems to be in the right neighborhood. But I have to take it with a grain of salt because (German Chancellor) Angela Merkel said earlier not to expect any big deal to come from the summit,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.

Sources from her party quoted German Chancellor Angela Merkel as saying she expects European leaders to produce a “work plan” for Greece at the summit, possibly including a permanent mission of international lenders to monitor its debts.

The euro was last up 0.4 percent at $1.3792 after touching a session low of $1.36525 on trading platform EBS. The single currency climbed to a one-month high above $1.39 on Monday.

Brent crude oil futures ended higher, lifted by Wall Street’s gains.

In London, ICE Brent crude for December delivery settled at $111.15 a barrel, gaining 99 cents, or 0.9 percent.


Robust U.S. profits have driven much of the U.S. stock market’s gains from the March 2009 lows, but investors have worried that corporations will be unable to sustain that profit growth in a sluggish global economic climate.

S&P 500 third-quarter earnings are expected to have risen 13 percent from a year earlier, up slightly from growth of 12.1 percent reported for the second quarter, according to Thomson Reuters data.

After the U.S. stock market close, index futures sold off following weaker-than-expected quarterly results from Apple Inc (AAPL.O).

Apple shares lost more than 5 percent to below $400 in extended trade after the company reported a rare miss in quarterly results after sales of its flagship iPhone fell short of Wall Street expectations.

The stock had closed up 0.5 percent at $422.24.

In Europe, bank shares fell sharply on Tuesday, with French banks among the worst hit after Moody’s warned on the outlook for France’s credit rating.

Moody’s cautioned it may slap a negative outlook on France’s Aaa credit rating in the next three months if costs from helping to bail out banks and other euro zone members stretch its budget too thin.

The Moody’s warning on France compounded investor jitters after Germany’s finance minister on Monday warned that it was not realistic to expect a definitive solution to the euro zone debt crisis to be reached at a key European Union summit to be held on Sunday.

The FTSEurofirst 300 index .FTEU3 closed down 0.4 percent at 962.13 points. Shares of French banks Societe Generale (SOGN.PA), BNP Paribas (BNPP.PA) and Credit Agricole (CAGR.PA) all lost between 3.3 percent and 5 percent.

Pedestrians are reflected in a screen displaying the stock index prices in Tokyo October 3, 2011. REUTERS/Issei Kato

Adding to global economic worries, China’s economic growth in the third quarter slowed to its weakest pace since the 2009 second quarter. Growth eased to 9.1 percent in the July-September period at an annual rate, slightly below forecasts of 9.2 percent.

U.S. Treasury prices turned lower late in the session.

Benchmark 10-year Treasury note prices fell 6/32 in price to yield 2.18 percent. Yields had fallen as low as 2.08 percent earlier, their lowest since October 7.

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