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While you were sleeping: Outlook gets rosier

Friday 23rd July 2010

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US equities rose as companies including United Parcel Service Inc raised profit forecasts, easing concern about the economic outlook a day after US Federal Reserve Chairman Ben Bernanke called it “unusually uncertain”.

UPS shares jumped on the world’s largest package-delivery company’s improved earnings expectations.

"UPS guiding higher is a very good sign since the amount of shipping volume is directly correlated to the strength of the economy," Peter Jankovskis, co-chief investment officer of Oakbrook Investments LLC in Lisle, Ill, told Reuters.

Manufacturers Caterpillar Inc and 3M Co added to the outlook optimism by reporting better-than-expected results. AT&T Inc’s quarterly profit exceeded analysts’ estimates, while Qualcomm Inc, the biggest maker of chips that run mobile phones, predicted higher selling prices for devices based on its technology.

In late trading, the Dow Jones Industrial Average rose 2.32%, the Standard & Poor's 500 Index advanced 2.52% and the Nasdaq Composite Index gained 2.70%.

Adding to the positive tone were US Treasury Secretary Timothy Geithner, who told reporters in Washington he saw “basic confidence” in the US economy even though credit was “still quite tight” for some borrowers, and a report showing sales of US previously owned homes in June decreased less than forecast.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, fell 5.54% to 24.22.

Today, Bernanke said extending the tax cuts passed during former President George W Bush administration would help strengthen a US economy still in need of stimulus.

“In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy,” Bernanke said in testimony before the House Financial Services Committee.

“There are many ways to do that. This is one way.”

The Stoxx Europe 600 Index rose 2.1% to 254.37.

Across Europe, the UK’s FTSE 100 rose 2.90%, France’s CAC 40 soared 3.05% and Germany’s DAX advanced 2.53%. Banks led the gains ahead of the results of stress tests tomorrow.

Among the most active stocks in Europe were Unibail-Rodamco SE, Vestas Wind Systems A/S and Capita Group Plc.

A composite index based on a survey of euro-area services and manufacturing purchasing managers increased to 56.7 in July from 56 last month, Markit Economics said. Economists had projected a drop to 55.5, according to a Bloomberg survey.

US Treasuries fell, pushing two-year yields up from a record low.

“Stocks are doing better - that could imply additional economic growth, which would be negative for yields and good for the economy,” Larry Dyer, a US interest-rate strategist in New York at HSBC Holdings Plc, one of 18 primary dealers that trade with the US central bank, told Bloomberg.

The benchmark 10-year note yield rose 5 basis points to 2.93% at 2.11pm in New York, according to BGCantor Market Data. The yield on the two-year Trearury note rose 1 basis point to 0.57%.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.85% to 82.58.

The euro jumped against the US dollar after data on the American housing market and the euro zone manufacturing and services sectors bolstered investors' confidence.

The yen erased most early gains versus the greenback and dropped sharply against other currencies as Wall Street rallied.

"The [US] dollar received a boost because the data was not nearly as bad as everyone had feared and because the median price of a home sold rose 1.0%," Kathy Lien, director of currency research at GFT Forex in New York, told Reuters.

The euro was last up 1.1% at US$1.2906, and also rose 1.1% to 112.31 yen.

The US dollar fell 0.1% at 87.01 yen.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 2.04% to 266.86.

Oil rallied with equities. Supporting gains was a tropical depression that might disrupt Gulf of Mexico production.

US crude oil for September delivery jumped US$2.22, or 2.9%, to US$78.78 a barrel by 12.40pm EDT (1640 GMT).

London ICE Brent futures rose US$1.96 to US$77.33.

Gold advanced, too. Spot gold was at US$1,194.35 an ounce at 12.41pm EDT (1641 GMT), up from US$1,191.80 late in New York on Wednesday.

US gold futures for August delivery rose US$3.20 to US$1,195 an ounce.

Among other precious metals, silver was at US$18.08 an ounce against US$17.77, platinum at US$1,520.25 an ounce against US$1,521, and palladium at US$452.95 against US$449.50.

Lonmin, the world's No. 3 platinum producer, said its third-quarter refined platinum sales nearly halved after the closure of its main furnace.

US copper futures advanced. Copper for September delivery gained 7.15 cents, or 2.3% to US$3.1645 per pound on the COMEX metals division of the New York Mercantile Exchange.

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