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While you were sleeping: Stocks shine on rescue plan

Tuesday 11th May 2010

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Stocks rose worldwide after European policy makers presented a rescue package worth as much as 750 billion euros in a bid to end the region’s sovereign-debt crisis.

Last week’s slide in the euro to a 14-month low and soaring bond yields in Portugal and Spain prompted the European Union’s offer of financial assistance to countries facing instability in an effort to stop a debt crisis in Greece spreading to other euro zone states.

The European Central Bank said it would counter “severe tensions” in certain markets by purchasing government and private debt and restarted a dollar-swap line with the Federal Reserve.

In late trading, the Dow Jones Industrial Average rose 3.33%, the Standard & Poor’s 500 Index gained 3.74% and the Nasdaq Composite advanced 4.16%.
Among the active stocks were General Electric Co, Caterpillar Inc and Bank of America Corp.

“This takes the panic out of the market,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, told Bloomberg News.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, dropped 26.12% to 30.25.

In response to last week’s dramatic plunge in stock prices on US markets, the Securities and Exchange Commission said on Monday it had reached an agreement with broker-dealer watchdog, the Financial Industry Regulatory Authority, and six major exchanges on a "structural framework" for strengthening circuit breakers and handling erroneous trades.

While the exact cause of the near 1000-point drop in the DJIA on Thursday afternoon remained unknown and under investigation, some market watchers pointed at trading glitches.

The Stoxx Europe 600 Index soared 7.2% to 254.14, the biggest gain since November 24, 2008.

In the UK, the FTSE 100 gained 5.16%, Germany’s DAX jumped 5.30% and France’s CAC 40 soared 9.66%.

Among the most actives were BNP Paribas SA, Banco Santander SA, BHP Billiton  and Rio Tinto Group. Miners rebounded along with commodities prices.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 3.55% to 84.15.

The euro jumped as much as 2.7% against the US dollar before giving up most of those gains.

It traded 0.4% higher at $1.2810 in afternoon trading in New York. Last week the euro hit a 14-month low of US$1.2510.

Against the yen, the euro rose 2.7% to 120.07, and the U.S dollar advanced 1.9% to 93.34.

Alan Ruskin, chief international strategist at RBS Securities in Stamford, Connecticut, told Reuters that the rescue package "will do no more than pad the euro downside against a sharp collapse rather than turn it around", adding the euro is still headed to the low US$1.20s by late summer.

Sterling rose to the day's high of US$1.5054, up 1.7% on the day amid talk of a possible deal between the UK Conservatives and the Liberal Democrats, following the stalemate after Thursday’s election.

News of Gordon Brown’s offer to resign as Prime Minister to boost chances of the Labour Party remaining in power had pared early gains in the U.K. currency.

In the fixed-income market, US Treasuries tumbled the most in nine months and bunds slid.

German 10-year bund yields surged the most in at least a decade. Treasuries remained lower after Moody’s Investors Service said it might again cut Greece’s rating.

The US Treasury 10-year yield rose 10 basis points, or 0.10 percentage point, to 3.53% in early afternoon trade in New York, according to BGCantor Market Data.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.56% to 265.40.

Spot gold dropped as confidence in the European rescue package lowered the appetite for safe-haven investments.

While the precious metal fell as low as US$1,183.85 in early trade before paring losses, it was bid at US$1,198.35 an ounce at 1320 GMT. US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell US$11.30 to US$1,199.00 an ounce.

Platinum rose to US$1,690.50 an ounce against US$1,656.50, and palladium  increased to US$525.50 from US$510.

Crude rose. OPEC Secretary-General Abdullah al-Badri said he expected the rescue package to boost oil prices back above US$80 a barrel, but warned of wild price swings as the global economy continued on its path to recovery, Reuters reported.

"I think the market will look positively at this development," Badri told reporters on the sidelines of the Arab Energy Conference. "I assume prices would go back to normal, where it was ... back up to US$80 plus."

US light crude oil futures for June delivery were up US$1.58 at US$76.69 a barrel at 12.23pm EDT on Monday, after hitting an intraday high of US$78.51, up US$3.40.

US copper futures posted their biggest advance in six weeks.  Copper for July delivery gained 2.7% to US$3.2305 a pound at noon on the New York Mercantile Exchange's COMEX division.

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