While you were sleeping: Chipmakers lift mood

Wednesday 16th June 2010

Stocks advanced in Europe and the US after the world’s two largest semiconductor companies bolstered optimism about the global economic recovery.

In late trading, the Dow Jones Industrial Average gained 1.81%, the Standard & Poor’s 500 Index climbed 1.96% and the Nasdaq Composite jumped 2.36%.

Semiconductor stocks helped lift the Nasdaq after Taiwan’s TSMC and UMC, the world's two largest contract chipmakers, forecast growing demand in the coming months amid an improving global economy and rising sales of new personal computers and other consumer gadgets.

Among the most active stocks on Wall Street were Intel, Broadcom and Marvell Technology Group.

Helping to lift some of the gloom over Europe's debt crisis, Spain, Belgium and Ireland sold government debt at auctions that attracted healthy demand. That helped the euro to rally against the US dollar and pushed commodity prices higher.

The S&P 500's rise pushed the index above its 200-day moving average, a level it has struggled to breach for the last month and that signals bullish momentum.

"You are seeing renewed confidence, and it's certainly evident in the price action in the euro," Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus Capital Markets in Baltimore, told Reuters. "There's definitely a trend toward returning to risky assets."

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, plunged 9.13% to 25.97.

The Stoxx Europe 600 Index rose 0.7% to 254.28, erasing its loss for the year.

The U.K.’s FTSE 100 gained 0.3%, France’s CAC 40 rose 0.98% and Germany’s DAX climbed 0.82%.

Among the most active stocks in Europe were British Sky Broadcasting, which led a rally in media stocks after Rupert Murdoch’s News Corp offered to buy the rest of the company for 7.8 billion pounds (US$11.5 billion). BSkyB dismissed offer, asking for it to be raised by at least 14%.

Also active were Societe Generale, USB and BP.

BP’s credit rating was cut six levels to two above junk by Fitch Ratings on concern over the potential cost of cleaning up the Gulf of Mexico oil spill and meeting future liabilities.

BP’s long-term issuer default and senior unsecured ratings were lowered to BBB from AA, Fitch said in a statement. That follows a cut from AA+ on June 3.

Fitch said it would be “surprised” if BP didn’t suspend the quarterly payout until the full costs were known.

BP fell 3.8% in London to the lowest level since April 1997.

US Treasuries were little changed. The yield on the 10-year note was unchanged at 3.26%.

The yield on the 30-year Treasury bond 4.19%, up from 4.18% late on Monday.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.57 to 86.02.

The euro climbed to a two-week high as solid demand at European debt auctions eased worries about the region's fiscal crisis and prompted investors to cover short positions in the currency.

A surprisingly large fall in a German investor sentiment index briefly slowed the euro's advance by suggesting the 16 country euro zone may face a period of slow economic growth.

But investors decided to look on the bright side after Spain raised 5.2 billion euros at 12- and 18-month bill auctions. Belgium netted 2.5 billion euros in an oversubscribed auction of its own.

"The refundings went better than expected. At least they can get their business done without having it be exorbitantly expensive. I think that's really important," Andrew Busch, currency strategist at BMO Capital Markets in Chicago, told Reuters. "We have run the cycle of downward pressure on the euro for the time being."

The euro was up 1% at US$1.2343. On Monday, it closed above its 14-day moving average for the first time since mid-April.

Against the yen, the euro was up 1% at 112.96 yen. The U.S. dollar was unchanged at 91.49 yen.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.35% to 263.50.

U.S. crude oil futures rose. At 11.43am EDT, U.S. crude futures were up US$1.33, or 1.77%, at US$76.45 a barrel.

In London, front-month ICE Brent July crude futures, which expire at close of trade, rose US$1 to US$76.20.

Spot gold was bid at US$1,226.95 an ounce at 1450 GMT, against US$1,220.15 late in New York on Monday. US gold futures for August delivery were up nearly US$5 to US$1,229.10.

Analysts said the Moody's downgrade of Greek government debt ratings to junk was not unexpected, but it reminded investors Europe's debt crisis was not over. In the medium term, concerns over fiscal stability were likely to fuel further gains in the metal.

"We have got a lot of potential market disruption risk this year - sovereign risk from Europe, fiscal tightening, at some point monetary tightening, and regulatory risk as well," Michael Lewis, head of commodity research at Deutsche Bank, told Reuters.

"There are a number of external events that could be quite positive for gold." But he added that he expected the pace of gains to slow from the rate seen from the end of April.

Copper for July delivery rose 1.25 cents to settle at US$3.0045 per pound on the New York Mercantile Exchange's COMEX division

Businesswire.co.nz

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