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While you were sleeping: Takeovers lift stocks

Tuesday 16th November 2010

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Equities on Wall Street and Europe advanced as plenty of takeover talk and action bolstered optimism among investors amid signs that the US economic recovery might be gaining traction.

Bucyrus International soared after Caterpillar agreed to buy the mining equipment maker.

Isilon Systems also jumped after EMC agreed to purchase it for US$2.25 billion. Isilon was the second most active stock on Nasdaq.

In early afternoon trading, the Dow Jones industrial average gained 0.65%, the Standard & Poor's 500 Index advanced 0.51% while the Nasdaq Composite Index rose 0.26.

"Continued M&A is the best thing going on in the market right now, and I'm expecting this activity to fuel a 100-point rally in the S&P by the end of the year," Uri Landesman, president of the New York-based hedge fund manager Platinum Partners, said.

The positive mood on the equity market was underpinned by promising signs about the pace of economic recovery as US retail sales climbed a better-than-expected 1.2% in October.

Consequently, US Treasuries declined, falling for a third consecutive session.

Investors questioned whether the Federal Reserve's US$600 billion bond purchase program, known as QE2, would be required and adjusted their bets accordingly as a group including former Republican government officials and economists urged the Fed to reconsider its quantitative easing plans.

"It seems like the overnight trade is very similar to what was occurring on Friday, which was essentially QE2 unwinds," John Briggs, US interest-rate strategist at RBS Securities in Stamford, Connecticut, said.

The yield on the 10-year note rose four basis points to 2.83% at 11:22am in New York, according to BGCantor Market Data.

In Europe, the Stoxx 600 gained 0.8% to 272.36.

Like in the US, it was takeover talk that lifted equities in Europe.  

MAN SE jumped after Scania said it was considering merging with the German truckmaker, Axa SA climbed as the insurer made a joint bid with AMP for Axa Asia Pacific Holdings and Invensys advanced on a report it might be bought by China's CSR Corp.

However, the debt crisis in Europe remains a prime worry for investors and central bankers alike.

Concern that Ireland's debt problems will require a European Union bailout weighed on the euro again today. The currency fell 0.5% to US$1.3619 and dropped 0.2% to 112.79 yen.

The Dollar Index, which measures its value against a basket of currencies, rose 0.5% to 78.47.

The European Central Bank said that Ireland could use European Union aid to recapitalise its struggling banks as the country maintained it didn't need financial help for its public budget.

"A lot of this is going to depend on how severe this whole euro zone crisis becomes. Everybody is really focused on the Wednesday meeting with euro zone finance ministers,"  Boris Schlossberg, director of currency research at GFT in New York, said.

US crude gained 32 cents to US$85.20 a barrel by 1554 GMT, recovering from a near US$3 drop on Friday.

ICE Brent futures added 54 cents to US$86.88.

"Crude is trying to rebound after the drop on Friday, but the stronger [US] dollar is limiting the bounce as are concerns about Europe and their effect on demand," Phil Flynn, analyst at PFGBest Research in Chicago, told Reuters.

Gold was steady, with spot gold bid at US$1,367.86 an ounce at 1507 GMT, against US$1,366.35 late in New York on Friday.

US gold futures for December delivery rose US$2.20 to US$1,367.70.

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