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While you were sleeping: US consumers bolster stocks

Tuesday 30th March 2010

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While equities were flat in Europe, they advanced on Wall Street after US consumers tapped into their savings and helped bolster spending for a fifth month.

In afternoon trading, the Dow Jones Industrial Average rose 0.38% and the Standard & Poor’s 500 gained 0.44%. The Nasdaq Composite rose 0.2%.

The S&P500 is heading to its best quarterly advance since 1998, according to Bloomberg News. The index has risen 5.1% so far this quarter.

Birinyi Associates Inc increased its year-end forecast for the S&P 500 to 1325, implying a rally of 14% from last week’s close.

“Given our trading background and approaches, we are impressed with the resilience of the market which, in effect, is what trading desks mean when they say the market ‘acts well,’” according to the report Birinyi sent to clients overnight as reported by Bloomberg. “Large stocks are now likely to be contributors rather than detractors.”

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ rose 1.5% to 18.04.

Among the advancers were Caterpillar Inc, Schlumberger Ltd, Exxon Mobil Corp and Boeing Co. Shares in Citigroup slipped after the US Treasury confirmed plans to sell, in stages, its entire stake in the firm by the end of 2010.

In Europe overnight, the Dow Jones Stoxx 600 was littled changed, edging up 0.1% to 263.89.

The UK’s FTSE 100 gained 0.1%, France’s CAC 40 advanced 0.3% and Germany’s DAX climbed 0.6%.

Some of the biggest movers included Allied Irish Banks Plc, Bank of Irealand Plc, Barratt Developments Plc as well as BHP Billiton and Rio Tinto Group.

“A consolidation after the rebound we’ve had isn’t shocking,” Chicuong Dang, an analyst at KBL Richelieu Gestion in Paris, which oversees about US$4.5 billion told Bloomberg.

The Dollar Index, which measures the greenback against a basket of six major currencies, slid 0.33% to 81.34.

The greenback retreated as the euro recouped some of its recent losses in the wake of a bond sale by Greece.

Greece's debt management agency said the country sold 5 billion euros of new seven-year debt at 5.9%, a yield more than twice that Germany pays.

In afternoon trading in New York, the euro was up 0.4% at US$1.3460 after earlier rising as high as US$1.3506, according to Reuters data. Against the Japanese yen, it was up 0.5% at 124.61 yen.

The dollar rose 0.1$ to 92.60 yen. Earlier selling by Japanese exporters ahead of Japan's fiscal year-end pushed it down to 92.36 yen.

"(American) consumers are getting more comfortable, which is an essential ingredient for a sustainable recovery. The Federal Reserve should be pleased to see steady spending growth, but will not raise rates until the job picture improves," Chris Low, chief economist at FTN Financial in New York, told Reuters

Spending increased 0.3% last month after rising 0.4 % in January, a Commerce Department report showed on Monday. The increase was in line with market expectations. Spending normally accounts for about 70% of U.S. economic activity.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, jumped 2.05% to 272.79.

US crude for May delivery rose US$2.45 to US$82.45 a barrel at 1807 GMT, up 3% and having traded as high as US$82.78, the highest front-month crude price since March 17.

London Brent crude gained US$2.27 to US$81.56.

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