Global stocks rally late on Fed speculation

By Jennifer Ablan

NEW YORK (BestGrowthStock) – World stocks staged a late-day surge to end higher on Tuesday and Treasury prices pared gains, reversing steep losses as bargain hunters emerged amid speculation the Federal Reserve will take steps to spur lending.

For much of the day, investors had been focused on lower-than-estimated revenues at major U.S. companies and a drop in U.S. housing starts intensified worries the economic recovery was losing momentum.

Goldman Sachs Group Inc. (GS.N: ), Johnson & Johnson (JNJ.N: ), International Business Machines Corp. (IBM.N: ) and Texas Instruments Inc. (TXN.N: ) have posted quarterly revenues that fell shy of expectations against the backdrop of disappointing economic news.

Late Tuesday, investors bought the beaten-down shares of Goldman, driving them up 2.2 percent to settle at $148.91.

Goldman, the heavyweight investment bank, said its earnings slid 82 percent in the second quarter, hampered by its settlement with the U.S. Securities and Exchange Commission and the UK’s payroll tax. Profit dropped to $613 million from $3.44 billion, while revenue slid 36 percent to $8.84 billion.

Market sentiment also moved in sympathy with U.S. markets on speculation over what Federal Reserve Chairman Ben Bernanke could announce in his semi-annual congressional testimony on Wednesday, including the possibility of a further loosening of monetary policy.

“The market is getting a boost here on a story from somewhere that the Fed is going to announce that they will stop paying interest on reserves where they are currently paying .25 percent,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote in an email to clients. “This would be the Fed’s attempt to force banks to lend money instead of parking it at the Fed. In my opinion, this is the last bullet in the gun of the Fed and therefore is not going to be used so soon.”

The Dow Jones industrial average (.DJI: ) rose 75.53 points, or 0.74 percent, to close at 10,229.96. The benchmark Standard & Poor’s 500 Index (.SPX: ) advanced 12.23 points, or 1.14 percent, to end at 1,083.48. The Nasdaq Composite Index (.IXIC: ) climbed 24.26 points, or 1.10 percent, to 2,222.49.

That said, investors still hedged themselves with exposure to gold, as the yellow metal rose more than 1 percent to top $1,190 an ounce.

Economic data on housing has continued to curb optimism of a strong recovery.

U.S. housing starts hit their lowest level in eight months in June, but a rise in building permits offered hope that home building was poised to pick up.

The Commerce Department said on Tuesday housing starts dropped 5.0 percent to a seasonally adjusted annual rate of 549,000 units, the lowest since October. It was the second straight month of declines in groundbreaking activity and was well below market expectations for a 580,000-unit rate.

World stocks as measured by MSCI rose 0.45 percent and the Thomson Reuters global stock index (.TRXFLDGLPU: ) also climbed 0.45 percent.

European stocks broke a week-long losing streak as mining stocks climbed along with metal prices. Spanish stocks such as Santander (SAN.MC: ) also rallied, helped by Spain’s successful Treasury bill auction that eased worries over the country’s ability to tap the debt market.

The FTSEurofirst 300 (.FTEU3: ) index of top European shares closed 0.04 percent higher at 1,006.64 points.

But Japan’s benchmark Nikkei stock index (.N225: ) shed 1.15 percent, reflecting investor concern about a U.S. slowdown.

Investor sentiment was also undermined when Hungary sold less of its debt than expected, days after its talks with international lenders were suspended.

EURO TAKES A BREATHER

The euro was lower, reversing a climb to its highest against the dollar in more than two months.

It retreated from $1.3029 hit on trading platform EBS as some investors questioned whether the single currency would sustain gains above $1.30, given that European bank stress test results due on Friday may reveal weakness in euro-zone financial institutions.

The poor demand at Hungary’s debt offer also stung the euro as it weighed on risk sentiment.

“We’ve seen risk appetite claw back a fair amount, and the market is questioning whether that move is valid,” said Jane Foley, director of research at Forex.com.

In New York trading, the euro was down 0.39 percent at $1.2889 from a previous session close of $1.2940.

The dollar was higher against a basket of major trading-partner currencies, with the U.S. Dollar Index (.DXY: ) up 0.31 percent at 82.766 from a previous session close of 82.513. Against the Japanese yen, the dollar was up 0.80 percent at 87.42 from a previous session close of 86.730.

U.S. Treasury debt prices were higher, with the yield on the two-year note touching a record low.

The two-year Treasury note yield briefly hit a low of 0.5764 percent, according to Reuters data. It was last yielding 0.58 percent, down from 0.60 percent late on Monday.

The benchmark 10-year U.S. Treasury note was up 1/32, with the yield at 2.96 percent, while the 30-year U.S. Treasury bond was down 2/32, with the yield at 3.98 percent.

Gold also gained on the day. Spot gold prices rose $8.80, or 0.74 percent, to $1,192.00. The Reuters/Jefferies CRB Index (.CRB: ) was up 0.32 of a point, or 0.12 percent, at 261.52.

Stock Market Money

(Additional reporting by Emily Flitter in New York and Tamawa Desai, Naomi Tajitsu and Harpreet Bhal in London; Editing by Jan Paschal)

Global stocks rally late on Fed speculation