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While you were sleeping: Alcoa, Fed bolster mood

Thursday 12th April 2012

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An unexpected profit by Alcoa and a positive view of the world's biggest economy from the Federal Reserve have helped global equities rebound.

In afternoon trading in New York, the Dow Jones Industrial Average rose 0.78 percent, the Standard & Poor's 500 Index advanced 0.80 percent and the Nasdaq Composite Index climbed 0.74 percent.

Shares in Alcoa surged more than 7.5 percent after the company surprised investors with a profit in the first quarter, instead of the loss that had been anticipated.

In its latest monthly review of the US economy, the Beige Book, the Fed said the economy maintained growth in all 12 of the central bank’s regions. Manufacturing, hiring and retail sales showed signs of strength even amid rising fuel prices, it said.

“Alcoa helped dampen the dark mood in the market,” Frederic Dickson, chief market strategist at DA Davidson & Co in Lake Oswego, Oregon, told Bloomberg News. “It’s always nice to see the first company out of the box with an earnings surprise. It’s time to see how this progresses and reassess when to put some money back in.”

Next up this week are results from Google, JPMorgan Chase and Citigroup.

All 10 groups in the S&P 500 climbed today. The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 1.6 percent.

The improved sentiment in the equity market hurt the appeal of US Treasuries. The demand for the Treasury's sale of US$21 billion in 10-year notes was lukewarm.

The securities drew a yield of 2.043 percent, compared with a forecast of 2.040 percent in a Bloomberg News survey of 10 of the Fed’s 21 primary dealers. The bid-to-cover ratio was 3.08, compared with an average of 3.13 for the past 10 sales, according to Bloomberg.

It wasn't all good news, though. Nokia shares tanked, in both Europe and on Wall Street, after the company warned its phone business would post losses in the first two quarters of this year. Nokia is trying to revamp its product line to compete with Apple and Samsung.

Though still the world's No. 1 maker of cell phones, Nokia gave up the top spot in the lucrative smart phone market last year to Apple and phones running Google's Android system, in part due to its weak performance in the US, where its smart phones have less than 1 percent of the market, according to Reuters.

In Europe, the Stoxx 600 Index rose 0.7 percent.

Helping to ease concern about the lingering debt crisis in Europe were comments by an executive board member of the European Central Bank. Benoit Coeure said investors in Spanish bonds were unfairly assessing the reforms undertaken by the government, adding that the ECB still retains the ability to buy bonds of EU nations as needed.

While buying Spanish bonds might not be that simple for the ECB because German policymakers are unlikely to approve the move, the words helped. The yield on the nation's 10-year bond climbed as high as 6.02 percent today, before falling to 5.84 percent.

And Italy today sold 11 billion euros of Treasury bills, meeting its target for the auction.

The auction indicated “solid” demand, even as it “was affected by a reigniting of the debt crisis” and “was marked by a conspicuous increase in rates,” the Bank of Italy said, according to Bloomberg.

Relief underpinned the euro, which gained 0.5 percent to 106 yen and strengthened 0.1 percent to US$1.3096.


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