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While you were sleeping: Optimism renews equities

Thursday 8th July 2010

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Stocks in the US rose as the fastest American retail sales growth in four years firmed optimism about the outlook for economic growth and the outlook for US corporate earnings improved.

In late trading, the Dow Jones industrial average gained 1.92%, the Standard & Poor's 500 Index advanced 2.14% and the Nasdaq Composite Index rose 2.01%.

Among the most active stocks on Wall Street were State Street Corp, Macy’s Inc, Nordstrom Inc and AES Corp.

US retailers’ sales probably expanded at an average monthly rate of 4% in the first five months of the retail fiscal year that began January 31, the biggest gain since 2006, the International Council of Shopping Centres trade group said in advance of its June report tomorrow.

Custody bank State Street forecast quarterly operating earnings would easily top Wall Street forecasts, sending its shares up 10.5% and boosting the broader market.

State Street said second-quarter operating earnings would be US93 cents a share, handily beating analysts' average forecast of US72 cents as compiled by Thomson Reuters I/B/E/S.

The US second-quarter earnings season begins in earnest next week.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, dropped 7.76% to 27.35.

The Stoxx Europe 600 Index advanced 1.4% to 246.06, after declining as much as 1.5% earlier in the day.

Across Europe, the UK’s FTSE 100 rose 1.0%, Germany’s DAX gained 0.87% and France’s CAC 40 climbed 1.76%.

Among the most active stocks in Europe were Societe Generale SA, Banco Santander SA, BP Plc and J Sainsbury Plc.

European banking regulators have told lenders that their planned stress tests might assume a loss of about 17% on Greek government debt and 3% on Spanish bonds, Bloomberg News reported, citing two people briefed on the talks.

There were unlikely to be so-called haircuts on German government securities under the stress tests being overseen by the Committee of European Banking Supervisors, said the people, who declined to be identified because the talks are private.

The CEBS was still weighing how much data to disclose and when, a European Union official familiar with the talks told Bloomberg.

US Treasury longer-term securities fell. Ten-year notes declined for the first time in two days as stocks gained. Ten-year yields remained near a 14-month low.

The 10-year note yield rose 2 basis points, or 0.02 percentage point, to 2.95% at 12.36pm inNew York, according to BGCantor Market Data.

Thirty-year bond yields rose 3 basis points to 3.92%. Two-year yields slid 1 basis point to 0.60%.

China ruled out the "nuclear" option of dumping its vast holdings of US Treasury securities but called on Washington to be a responsible guardian of the US dollar.

In the third in a series of statements explaining its work to the Chinese public, the State Administration of Foreign Exchange sought to allay concerns in the outside world that arise whenever Beijing shifts its holdings of US government debt.

"Any increase or decrease in our holdings of US Treasuries is a normal investment operation," SAFE, the arm of the central bank that manages China's official currency reserves, said.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.34% to 83.79.

The euro fell from seven-week highs against the US dollar amid concern about the global economic outlook and the start of the stress tests on European banks: 91 banks were to be examined.

European regulators on Wednesday haggled over what details to reveal, a dispute that could undermine confidence in the health checks on the region's lenders.

Worse-than-expected data showed factory orders in Germany, the euro zone's largest economy, fell for the first time this year in May.

The euro fell 0.2% to US$1.2592 after reaching US$1.2663 on trading platform EBS on Tuesday.

"The euro remains vulnerable to another downturn as investors begin to look to the 16-member bloc's growth prospects amid a back drop of strict budget cuts and the potential for another downturn in the global economy," Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington, DC, told Reuters.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.77% to 258.30.

Oil prices rose, after six straight sessions of losses.

US crude was up US$1.51, or 2.1%, to US$73.49 a barrel by 12.20pm EST (1620 GMT). It closed at US$71.98 Monday, the lowest since early June.

ICE Brent crude futures were up US$1.47 at US$72.92.

Weekly US oil data from industry group American Petroleum Institute at 2030 GMT Wednesday and the US Energy Information Administration due on Thursday are expected to show a sizable draw on crude oil stocks.

Gold rose. Spot gold was bid at US$1,193.35 an ounce at 1352 GMT, against US$1,191.50 late in New York on Tuesday. US gold futures for August delivery were down US$1.50 to US$1,193.50.

Gold has lost about 6% from the record high at US$1,264.90 an ounce it hit in late June, which has tempted some buyers back to the market.

In India, the world's biggest gold consumer, jewellers bought stocks ahead of religious festivals, and other physical buyers in Asia snapped up bullion after prices fell.

Silver was at US$17.77 an ounce versus US$17.78, while platinum was at US$1,507 an ounce against US$1,512.50 and palladium rose to US$438.50 versus US$435.

US copper futures rose to a one-week high. Copper for September delivery rose 5.50 cents, or 1.9%, to settle at US$2.9710 per pound on the COMEX metals division of the New York Mercantile Exchange.

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