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While you were sleeping: Investors focus on good news

Thursday 27th May 2010

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Stocks in the US and Europe advanced as investors drew confidence from better-than-expected reports on global economic growth.

The US Commerce Department said new home sales climbed 15% to an annual pace of 504,000, the most since May 2008. Meanwhile US orders for durable goods rose in April for the fourth time in five months, pointing to strength in US manufacturing at the start of the second quarter.

In late trading, the Dow Jones Industrial Average rose 0.16%, the Standard & Poor’s 500 Index gained 0.34% and the Nasdaq Composite advanced 0.12%.

Among the most active stocks were Standard Pacific Corp, Lennar Corp and Schlumberger Ltd.

“The most recent economic figures are very encouraging and reinforce the view that the recovery is in place. Chances are the stock market will be up for several weeks,” Tom Wirth, senior investment officer for Chemung Canal Trust Co in Elmira, New York, told Bloomberg News.

Apple Inc briefly became the largest tech company in the world by market capitalisation after surpassing Microsoft Corp's market value, according to Reuters data.

Apple's live market cap rose above US$227 billion to overtake Microsoft's and made it the second-largest company on the S&P 500 index. The top spot is held by energy behemoth Exxon Mobil Corp.

The Chicago Board Options Exchange Volatility Index, or VIX which is known as Wall Street’s ‘fear gauge’, declined 5.61% to 32.67.

The benchmark Stoxx Europe 600 Index rose 2.4% to 237.74, the largest gain in more than two weeks. The UK’s FTSE 100 gained 1.97%, France’s CAC 40 rose 2.32% and Germany’s DAX climbed 1.55%.

Among the most actives were BHP Billiton Limited, Credit Agricole SA and Swatch Group AG. Global miners were bolstered by higher commodity prices and speculation that Australia would tweak its planned new super resources profit tax.

The Stoxx Europe 600 Index has fallen 8.5% so far this month, on course for the biggest drop since February 2009. The decline has left the gauge trading at about 14.3 times the reported earnings of its companies, near the cheapest valuation since 2008, according to Bloomberg data.

“Now really is the time when you need to look somewhat longer term,” Jane Coffey, who helps manage US$50 billion of investments at Royal London Asset Management Ltd, told Bloomberg Television.

“Is your long-term scenario deflation or is it that governments will muddle through? If they muddle through than markets are cheap.”

The euro fell for a third straight session against the US dollar, on lingering concern the debt crisis in the euro zone will curb economic growth in the region. The IMF today said at least part of the euro financial assistance package should go to boosting growth.

The euro zone common currency extended losses to hit a session low after Britain's Financial Times newspaper said China was reviewing its euro zone bond holdings because of growing concern about gaping deficits in euro zone member countries including Greece and Portugal.

Concerns about tighter dollar funding, with three-month dollar interbank rates hitting a fresh 10-month high, and poor demand at a German debt auction also weighed, analysts said.

"The overarching themes remain the same. The market is very fearful of the contagion factor and the debt issue dragging on the economy over there," John Doyle, foreign exchange strategist at Tempus Consulting in Washington, told Reuters.

In afternoon New York trading, the euro fell more than 1% to US$1.2193/96.

The euro hit a four-year low of US$1.2143 on electronic trading platform EBS last week and is down about 15% so far this year.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.89% to 87.11.

The global economy is recovering faster than expected from recession with Asia leading the way, but it is at risk from huge debts in developed countries and possible overheating in countries such as China, according to the latest report from the Paris-based OECD.

In a twice-yearly report, the Organization for Economic Co-operation and Development raised its forecast for global growth to 4.6% in 2010 and 4.5% in 2011. Last November it predicted growth of 3.4% this year and 3.7% in 2011, after a 0.9% contraction in 2009.

US Treasuries fell as the US sold US$40 billion of five-year notes.

The notes drew a yield of 2.13%, compared with a forecast of 2.11% in a Bloomberg News survey of nine of the Federal Reserve’s 18 primary dealers. The bid-to-cover ratio was 2.71, versus an average of 2.57 for the previous 10 sales.

The yield on the current 5-year note rose 10 basis points to 2.09% at 1.17pm in New York, according to BGCantor Market Data. The yield on the benchmark 10-year note increased 9 basis points to 3.25%.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.62% to 252.82.

Oil prices soared nearly 4%, their biggest gain in over three months.

A cautious recovery in risk appetite aided oil along with US stocks and other commodities, with positive sentiment and strong manufacturing data overshadowing a larger-than-expected rise in US crude oil stockpiles.

US crude rose US$2.56, or 3.7% to US$71.31 a barrel by 1.15pm EDT.
London Brent crude gained US$1.97 to US$71.52, ending a nine-session losing streak.

Gold advanced. Spot gold was bid at US$1,213.55 an ounce at 1509 GMT, against US$1,200.10 late in New York on Tuesday.

US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose US$16.90 to US$1,214.90 an ounce.

Interest in physical gold remained high, with holdings of the world's largest gold exchange-traded fund, New York's SPDR Gold Trust, rising 30.4 tons on Tuesday to a record 1,267.3 tons, its biggest one-day inflow since February 12, 2009.

"Gold will be well supported as debt fears and Korea won't go away, especially if the debt crisis turns into another banking crisis," Ole Hansen, senior manager at Saxo Bank, told Reuters.

Copper for July delivery gained 3.85 cents at US$3.0805 per pound on the New York Mercantile Exchange's COMEX division.

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