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While you were sleeping: US economy roars

Tuesday 4th May 2010

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While concerns linger about the fate of the euro zone, the US economy seems to shift into a higher gear week by week. Today’s manufacturing report plus April sales numbers from American auto makers shows that the US recovery is well entrenched.

The economic optimism bolstered investors. The Dow Jones Industrial Average rose 1.3%, the Standard & Poor’s 500 gained 1.3% and the Nasdaq Composite rose 1.53%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ dropped 9.1%.

The US manufacturing sector grew in April at its fastest pace in almost six years, according to an industry report, while the government reported an unexpected rise in construction spending in March, marking the first advance since October.

Among the actives were Caterpillar Inc. General Electric Co, Boeing Co and Goldman Sachs Group.

Airlines got a boost from UAL Corp’s agreement to acquire Continental Airlines in a stock deal.

In Europe overnight, the Dow Jones Stoxx  600 rose 0.2% to 260.52, after falling as much as 0.6% earlier.

UK markets were closed today for a public holiday. In Germany, the Dax 30 rose 0.51% while France’s CAC 40 increased 0.3%.

Among the most actives were Lanxess AG, WestLB AG, Banco Santander SA and GDF Suez SA.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.59% to 82.35.

The euro dropped 0.7% to US$1.3204 in mid-afternoon trading in New York. Earlier it touched US$1.3361. The 16-nation currency traded at 124.92 yen from 124.78. The greenback edged to 94.61 yen from 93.85 yen.

“The euro is just patently overvalued,” Richard Franulovich, senior currency strategist at Westpac Banking Corp. in New York, who predicts a decline to $1.30 this month, told Bloomberg.

EU leaders are scheduled to meet on May 7 to discuss the timeline of parliamentary approval for loans to Greece. Germany is due to debate the plan on the same day.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.14% to 278.10.

US copper futures settled at a two-month low because of the stronger US dollar and concerns about tighter monetary conditions in China. Copper for July delivery fell 6 cents to US$3.2935 a pound in New York.

Spot gold rose to a 2010-high of US$1187.41 an ounce. The precious metal's appeal as a more secure alternative to paper currencies can be seen in it reaching record highs in euro, sterling and Swiss franc terms.

US June gold futures settled US$2.60 higher at US$1183.30 an ounce. Silver also firmed, rising to US$18.80 from US$18.59 on Friday.

Trading was thinner than normal because of holidays in the UK, Japan, China and Thailand on Monday.

Crude oil in the US rose 56 cents to US$86.71 in early afternoon trading in New York, bolstered by the latest economic reports for the world's biggest economy. Brent crude rose US$1.86 to US$89.30.

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