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While you were sleeping: Stocks rise on earnings

Tuesday 3rd August 2010

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Stocks advanced as investors took heart from better-than-expected earnings from companies including Humana and HSBC Holdings.

In late trading, the Dow Jones Industrial Average rose 2.01%, the Standard & Poor's 500 Index climbed 2.20% and the Nasdaq Composite Index advanced 1.88%.

Among the most active on Wall Street were Humana, Coca Cola, Bank of America, Alcoa and Office Depot.

In the US, Humana gained 3% after the biggest provider of US-backed health benefits forecast third-quarter profit that exceeded analysts’ expectations.

In Europe, HSBC, Europe’s biggest bank, and BNP Paribas, the largest lender in France, posted earnings that surpassed expectations. Almost 60% of companies in the Stoxx Europe 600 Index that reported results since July 12 have topped analysts’ estimates for net income, according to data compiled by Bloomberg.

“The earnings - all I’ve seen is good news, continued strength,” Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, told Bloomberg.

US Federal Reserve Chairman Ben Bernanke said today that the economy was improving but had yet to recover fully, with high unemployment and a weak housing market leaving consumers unsettled.

This means monetary policy must remain accommodative until the economic recovery was on a sustainable path and job creation picked up, Bernanke said, though he offered no fresh clues about the Fed's likely next move.

"We need to make sure that monetary policy continues to provide the support the economy needs until we begin to see growth, sustained growth and particularly growth in jobs," he said in response to questions of state legislators.

Growth in the US weakened to a 2.4% annual rate in the second quarter from 3.7% in the first three months of the year, according to a report last Friday. Data today showed the manufacturing sector's expansion moderated to its slowest pace since December, and a report on Friday is expected to show a second month of net job losses.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, dropped 6.17% to 22.05.

The Stoxx Europe 600 Index rose 2.6% to close at 262.09, the highest since April 26.

Across Europe, the UK’s FTSE 100 jumped 2.65%, Germany’s DAX gained 2.34% and
France’s CAC 40 climbed 2.99%.

Among the most active stocks in Europe were HSBC, BNP Paribas, Linde and BHP Billiton.

US Treasuries fell after reports showed growth in manufacturing and construction spending.

The yield on the 10-year note climbed five basis points, or 0.05 percentage point, to 2.95% at 2.41pm in New York, according to BGCantor Market Data. The yield on the 10-year note reached a 15-month low of 2.85% on July 21.

Three-month dollar Libor rates fixed almost a basis point lower at 0.44469%.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.79% to 80.90.

The US dollar fell to a three-month low against a basket of currencies, while strong European earnings meanwhile pushed sterling to a six-month high against the greenback.

The euro was last up 1% at US$1.3181. A close around these levels, analysts said, would be a bullish sign.

Currency traders paid little attention to US data today showing stronger than expected manufacturing growth.

Sterling hit a six-month high versus the US dollar of US$1.5897 and hit a four-week high against the euro, underpinned by the strong results from HSBC and BNP Paribas.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.87% to 276.74.

Oil jumped to its highest level in nearly three months, as the bullish mood on equity markets and the weak US dollar raised optimism about the strength of the global economic recovery.

US September crude rose US$2.59, more than 3%, to US$81.54 a barrel by 1.02pm EDT (1702 GMT).

ICE Brent rose US$2.72 to US$80.90.

Gold fell as technical selling put a damper on bullion's initial rise. Spot gold was last at US$1,179.95 an ounce at 12.28pm EDT (1628 GMT), against US$1,181.50 late in New York on Friday. US gold futures for December delivery slipped US$2.10 to US$1,181.80.

"The gold market is undecided whether it wants to follow the strength in the industrial metals. If you look only at the gold chart, this is a rally in a down-trending market, so it attracted profit taking," George Nickas, commodities broker at FC Stone, told Reuters.

"Last week, the August contract going into first-notice day was extremely weak, and gold traders haven't shrugged that off yet," he said.

Gold dropped about 5% in July. Analysts said the metal was at risk of dropping after breaking below a two-year bullish support channel.

Silver and platinum group metals, however, climbed on positive economic sentiment.

Silver rose to US$18.34 an ounce versus US$17.96. Platinum was at US$1,592 an ounce against US$1,566.55, while palladium was at US$510 against US$491.

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