NEW YORK (Reuters) - Stocks surged on Friday to close out a sour quarter on a high note as investors cheered an agreement by European leaders to stabilize the region’s banks, a pact that helped remove some of the uncertainty that has plagued markets.
The broad rally was the S&P 500’s best day since December 20 and helped the benchmark index trim its quarterly loss to 3.3 percent.
The decline marked the S&P 500’s first down quarter in the last three after tumultuous Greek elections and concerns about the solvency of Spanish banks roiled financial markets around the world.
“You are going to be see a nice summer rally out of this. Think of where this market would be if it hadn’t been for the euro crisis,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
“The market is now looking at least six to eight months forward on what is the economic landscape going to look like in an improving European growth environment.”
Euro-zone leaders agreed that countries would be able to recapitalize banks directly without increasing a country’s budget deficit.
Such a move creates a catalyst to snap the cycle that markets fell into when policymakers bailed out Spanish banks with $125 billion, but ended up further exacerbating Spain’s sovereign debt problem and shunting existing bondholders down the food chain.
Among Wall Street’s few decliners in Friday’s session, Ford Motor Co (F.N) fell 5 percent to $9.59 after the automaker became the latest large multinational to warn on weakness stemming from Europe, joining the likes of Procter & Gamble Co (PG.N) and Hewlett-Packard (HPQ.N).
Sectors sensitive to euro-zone developments ranked among the best performers. U.S. bank stocks were among the market leaders as the KBW bank index .BKX jumped 2.7 percent. Shares of Bank of America Corp (BAC.N) rose 5.7 percent to $8.18. The PHLX Europe sector index .XEX climbed 4 percent.
Investors also cited end-of-quarter portfolio adjustments as helping to fuel Friday’s gains, in addition to the EU agreement.
The Dow Jones industrial average .DJI jumped 277.83 points, or 2.20 percent, to 12,880.09 at the close. The Standard & Poor's 500 Index .SPX rose 33.12 points, or 2.49 percent, to 1,362.16. The Nasdaq Composite Index .IXIC climbed 85.56 points, or 3.00 percent, to 2,935.05.
For the week, the Dow gained 1.9 percent, the S&P 500 rose 2 percent and the Nasdaq advanced 1.5 percent.
For the month of June, the Dow rose 3.9 percent, the S&P climbed 4 percent and the Nasdaq added 3.8 percent.
But for the second quarter, the Dow fell 2.5 percent, the S&P 500 lost 3.3 percent and the Nasdaq dropped 5.1 percent.
Italian and Spanish borrowing costs fell, though they remained not far from recent highs. Investors’ expectations for any action during a two-day European Union summit had dissipated, giving markets room to bounce on the unexpected good news.
Brent and U.S. crude oil prices soared on the back of the EU agreement. Energy futures prices also got a boost from the euro’s jump of almost 2 percent against the U.S. dollar. The S&P energy sector index .GSPE added 3.1 percent. <USD/>
The EU summit news overshadowed a batch of mixed U.S. data. U.S. consumer spending stalled in May as auto purchases flagged while consumer sentiment hit a six-month low in June in the latest signs of trouble for the economy.
Although another report on Friday showed manufacturing activity in the Midwest picked up this month, factories saw a modest decline in new orders.
Attention in Europe now turns to next week’s European Central Bank meeting. The consensus is that the bank will cut its main refinancing rate by 25 basis points to 0.75 percent and may trim the deposit rate - the rate it pays banks for parking money with it - by 25 basis points to 0 percent.
“You have more fireworks coming next week when the ECB meets on the fifth because I have to believe they are going to cut their interest rates by at least a half to stimulate growth,” Mendelsohn said.
Shares of KB Homes (KBH.N) jumped 12.6 percent to $9.80 after the fifth-largest U.S. homebuilder reported a narrower second-quarter loss, helped by higher sale prices and net orders.
Nike (NKE.N) shares slumped 9.4 percent to $87.78 a day after the world’s largest sportswear maker missed quarterly profit estimates for the first time in at least two years.
U.S.-traded shares of Research in Motion RIMM.O tumbled 19.1 percent to $7.39 in the wake of the company’s decision to delay the make-or-break launch of its next-generation BlackBerry phones until next year.
Volume was active with about 7.69 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average of 6.85 billion.
Advancing stocks outnumbered declining ones on the NYSE by 2,669 to 388. On the Nasdaq, advancers beat decliners by 2,174 to 376.
Reporting by Chuck Mikolajczak; Editing by Dave Zimmerman and Jan Paschal