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While you were sleeping: Equities rally on low rates

Thursday 18th March 2010

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Global stocks rallied, bolstered by the outlook for extended low interest rates in the US and a producer price report overnight that confirmed inflation showed few signs of forcing the hands of central bankers for anytime soon.

In mid afternoon trading, the Dow Jones Industrial Average was up 0.74%, the Standard & Poor’s 500 edged up 0.87% and the Nasdaq Composite rose 0.83%.

Investors expect the S&P 500 to rise 10% during 2010, according to a quarterly Reuters poll published Wednesday.

Low interest rates for an extended period should help keep borrowing costs down for companies and boost their profits.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ plunged 6.2% to 16.59 - the lowest since May 2008.

Among the advancers were financials and energy companies including JP Morgan Chase & Co and Exxon Mobil Corp.

“Investors like knowing where rates are going to be for at least the next three months, and knowing we have that stable environment to look forward to is what's lifting stocks,” said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco, told Reuters.

The US Labor Department reported overnight that producer prices slid 0.6% in February, the biggest decrease since July. Core prices, those excluding food and fuel, edged 0.1% higher.

Tomorrow the economic calendar includes the latest US consumer price report as well as leading indicators and the Philly Fed survey.

The results were further confirmation that price pressures remained in check and that the Federal Reserve need not increase rates for some time.

In Europe overnight, the Dow Jones Stoxx 600 gained 0.9% to 261.34, its highest level in more than five months.

Among national benchmarks, the UK ’s FTSE 100 added 0.4%, Germany ’s DAX 30 rose 0.9% and France ’s CAC 40 advanced 0.5%.

Among the advancers were Rio Tinto Group, UniCredit SpA, Arriva Plc, EFG International AG and Kazakhmys Plc.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.11% to 79.57.

In midday New York trading, the euro fell 0.2% to US$1.3745, after hitting a five-week high of US$1.3817, according to Reuters data. That earlier rally was a carry-over from news on Tuesday that Standard and Poor's removed Greece's ratings from a downgrade review.

The euro also fell to a 17-month low against the Swiss franc at 1.4480 as investors took out option barriers at 1.4500. The pair last traded at 1.4488, down 0.2%.

The greenback was up 0.2% at 90.39 yen against a broadly weaker Japanese currency.

The difference between 2- and 10-year Treasury yields narrowed to the least in almost two weeks after today’s US producer prices report, Bloomberg News reported.

The yield curve narrowed as much as 0.02 percentage points to 2.72 basis points, the lowest level since March 5. Two-year note yields rose one basis point to 0.92%. Yields on 10-year notes traded at 3.65%.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.02% to 276.34.

Copper for delivery in three months surged 1.8% to US$7540 a metric ton on the London Metal Exchange and zinc rallied 1.8% to lead gains in industrial metals.

Crude oil advanced 0.8% to US$82.31 a barrel in New York trading, extending a 2.4% jump the previous day.

Goldman Sachs Group Inc. raised its 12-month outlook for returns from commodities to 17.6% and said the biggest gains probably would be in crude, copper, corn and platinum.

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