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While you were sleeping: Solid earnings spark hope

Wednesday 18th August 2010

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Stocks in Europe and the US rose on stronger-than-expected profits from retailers Wal-Mart Stores and Home Depot.

Shares also were supported by mergers and acquisitions activity after BHP Billiton made an unsolicited US$38.6 billion takeover bid for Potash of Saskatchewan, which the Canadian company immediately rejected as too low.

Among the most active stocks on Wall Street were Wal-Mart, Home Depot and Potash.

Potash's US-traded stock surged 25.1% to $140.30 on speculation a higher bid will follow.

"The increase in M&A shows CEO's and CFO's have more confidence in the outlook for the economy and are willing to start to deploy some of the high cash balances, which have built up in recent months," Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut, told Reuters.

In late trading, the Dow Jones Industrial Average gained 1.59%, the Standard & Poor's 500 Index advanced 1.72% while the Nasdaq Composite Index rose 1.72%.

Economic indicators were positive as well. US production jumped twice as much as forecast in July. Output climbed 1% as factories churned out more computers, appliances, automobiles and industrial machinery, the Federal Reserve said today in Washington.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, dropped 8.7% to 23.83 in New York. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index.

The Stoxx Europe 600 Index rose 1.1% to 258.47.

The UK’s FTSE 100 climbed 1.41%, Germany’s DAX gained 1.57% and France’s CAC 40 rose 1.82%.

Among the most active stocks in Europe were Carlsberg A/S, Wienerberger AG, BHP Billiton, K+S AG and Yara International AG.

US Treasuries fell on the better-than-expected industrial production data.

The Fed bought US$2.55 billion of Treasuries due from August 2014 to February 2016 today, reviving its purchases of US debt to bolster the economy by keeping borrowing costs down.

The yield on the benchmark 10-year note rose seven basis points, or 0.07 percentage point, to 2.63% at 12.11pm in New York, according to BGCantor Market Data.

Yields on the two-year note rose three basis points to 0.51%. Thirty-year yields rose four basis points to 3.75%.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.38% to 82.22.

The euro rose against the greenback and gained from seven-week lows against the yen, as solid results at Irish and Spanish bond auctions alleviated concerns about heavily indebted euro zone countries.

The German ZEW institute's measure of investor and analyst sentiment dropped well below forecasts, though this was partly offset by an unexpectedly sharp jump in the current conditions index.

At 1115 GMT, the euro was up 0.3% at US$1.2860.

The euro rose 0.2% against the yen to 109.73 yen. The US dollar was at 85.34 yen, nearing a 15-year low of 84.72 yen hit last week.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.78% to 270.19.

Oil snapped a five-day losing streak. US crude for September delivery rose 81 cents to US$76.05 a barrel by 1142 GMT, recovering from a one-month low of US$74.86 hit on Monday.

The new ICE Brent crude future contract for October delivery gained US$1.22 to US$76.83 a barrel. The September contract expired at US$74.85 on Monday.

Gold rose as investors looked to the precious metal for its perceived safety from financial instability.

Spot gold was bid at US$1,225.05 an ounce at 1415 GMT, against $1,222.85 late in New York on Monday. US gold futures for December delivery rose US$1.60 to US$1,227.80.

Copper for September delivery climbed 5.90 cents, or 1.8%, to settle at US$3.3385 per pound on the COMEX metals division of the New York Mercantile Exchange.

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