Stocks Rise Around World; Commodities Climb on China Plan, Treasuries Fall
By Cristina Alesci and Jeff Kearns
March 4 (Bloomberg) -- Stocks rose around the world, commodity prices rallied and Treasuries fell on speculation China will broaden efforts to boost growth and U.S. lawmakers will reach agreement on a plan to stem mortgage defaults.
The Standard & Poor’s 500 Index climbed to its highest level of the day after General Electric Co., which had plunged below $6 for the first time since 1991, said it doesn’t need to raise capital. Alcoa Inc., Freeport-McMoRan Copper & Gold Inc. and Aluminum Corp. of China Ltd. surged more than 9 percent as a former statistics chief said China’s Premier Wen Jiabao will announce a new stimulus package tomorrow. Caterpillar Inc., the biggest maker of earthmoving equipment, surged 15 percent.
“Stocks are cheap and the sun will rise again,” said Lawrence Creatura, a Rochester, New York-based money manager at Federated Investors Inc., which oversees $407 billion. “There’s a ray of sunshine in two areas: China and housing. It’s an incremental positive for both commodities and housing.”
The S&P 500 increased 2.4 percent to 712.95 at 11:39 a.m. in New York after closing below 700 for the first time since October 1996 yesterday. The Dow average added 150.53 points, or 2.2 percent, to 6,876.55. The MSCI World Index rose 2.6 percent to 723.57, as benchmark indexes from Hong Kong to London climbed more than 2 percent. China’s Shanghai Composite Index jumped 6.1 percent, the most in four months.
Treasuries fell, sending yields on 10-year bonds up 13 basis points to 3.01 percent. The yen slipped against the dollar as the rally in stocks curbed demand for assets perceived as safe.
The S&P 500 traded for 12 times company profits from the past 10 years as of yesterday’s close, the cheapest since 1986, according to data compiled by Yale University professor Robert Shiller. He uses a decade of earnings to smooth out short-term fluctuations.
Energy stocks in the S&P 500 advanced 4.1 percent, the most among 10 industries, followed by raw-material producers at 3.8 percent.
Exxon Mobil Corp., the biggest energy company, added 2.5 percent to $65.99. Freeport-McMoRan, the world’s largest publicly traded copper producer, jumped 11 percent to $31.64. Alcoa, the biggest U.S. aluminum producer, gained 10 percent to $6.08.
Mining companies BHP Billiton Ltd., Rio Tinto Group and Xstrata Plc rallied more than 10 percent in Europe.
Copper futures advanced on optimism metals consumption in China may pick up as government stimulus packages take effect. Nickel, aluminum, zinc and lead also climbed.
‘Cram-Down’
Standard Pacific Corp. jumped 8 percent to lead gains in homebuilders as House Democrats reached a deal on mortgage legislation. A summary of a revamped bill showed mortgage “cram- down” legislation that stalled in Congress last week will require homeowners to exhaust all options before they could use bankruptcy to reduce their loan payments.
The House of Representatives may vote as early as March 5 on the amended legislation, which would let federal judges lengthen loan terms, cut principal payments and reduce interest rates for borrowers in Chapter 13 bankruptcy protection, House Majority Leader Steny Hoyer, a Maryland Democrat, told reporters late yesterday.
GE shares dropped below $6 for the first time since December 1991, plunging as much as 18 percent. The stock pared its decline in half after the company said in an e-mail to investors that concerns it needs to raise capital are “pure speculation.”
Pacific Investment Management Co.’s Bill Gross said GE is not another American International Group Inc., the insurer that was seized by the government. GE’s shares are being driven down by selling by sovereign wealth funds anticipating a downgrade of the company’s AAA credit rating, Gross told CNBC.
“It’s too much like a death spiral,” said David Rolfe, chief investment officer at Wedgewood Partners in St. Louis, which has $400 million under management and doesn’t own GE shares. “The market is worried that the debt is simply going to overwhelm the declining asset base.”
Europe’s Dow Jones Stoxx 600 Index climbed 3.1 percent, rebounding from the lowest level since 1996. Zurich Financial Services AG climbed after JPMorgan said Switzerland’s biggest insurer’s “solvency position is strong.”
The MSCI Asia Pacific Index rose 0.6 percent as China’s Jiangxi Copper Co. and Japan’s Seven & I Holdings Co. advanced. Wen will announce a new stimulus package tomorrow, adding to a 4 trillion yuan ($585 billion) spending plan, former Statistics Bureau head Li Deshui said today, without elaborating.
4 Trillion Yuan
The Shanghai Composite Index jumped 6.1 percent, the biggest gain since Nov. 10, when it climbed 7.2 percent after the government announced its 4 trillion yuan plan. China’s rally helped send the MSCI Emerging Markets Index 2.5 percent higher.
Earnings for 245 companies in the Stoxx 600 that have reported earnings since Jan. 12 have dropped 91 percent, according to Bloomberg data. That compares to a 58 percent contraction in profit for the 465 companies that have reported results in the S&P 500 during the same period.
“The news has never been worse on Main Street and markets are holding up better than in the past, it may be a sign we are bottoming out,” said James Paulsen, who helps oversee $220 billion as chief investment strategist at Wells Capital Management in Minneapolis.
To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: March 4, 2009 11:43 EST
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