Date Published: 05/10/10

Stocks, Oil, Euro rally on European Loan Plan; Treasuries fall

May 10 (Bloomberg) -- Stocks rallied around the world, sending the MSCI World Index up the most in 13 months, while Greek, Spanish and Portuguese bonds soared and the euro strengthened after European policy makers announced an almost $1 trillion loan plan to end the region’s sovereign-debt crisis.
The MSCI World gauge of stocks in 23 developed nations jumped 4.6 percent at 11:23 a.m. in New York, while the Standard & Poor’s 500 Index rose 4.1 percent and Spain’s IBEX 35 Index surged a record 14 percent. The premium demanded to hold Greek 10-year bonds instead of benchmark German bunds slid 585 basis points. Oil surged as much as 4.5 percent. The VIX, a gauge of stock-market volatility, slid the most in its two-decade history. Treasuries, the dollar and gold fell as investors pursued riskier assets.
Governments of the 16 euro nations agreed today to lend as much as 750 billion euros ($962 billion) to the most-indebted countries. The European Central Bank said it will counter “severe tensions” in “certain” markets by purchasing government and private debt. Concerns that the Greek financial crisis will spread wiped $3.7 trillion from the value of global stock markets last week.
“I was rubbing my eyes and trying to make sure I was looking at the right numbers,” James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, which oversees $104 billion, said of early-morning gains in stocks. “The selloff from last week is overdone. That’s why we’re rallying. If you’re able to stabilize Europe, the growth story continues to be in place in the U.S.”
Improving Economy
The emergency action may allow investors to return their focus to the improving outlook for the global economy. About 69 percent of companies on the MSCI World Index that reported quarterly earnings since April 12 have beaten analysts’ forecasts, according to Bloomberg data. Employment in the U.S. increased in April by the most in four years, the Labor Department said May 7, indicating the recovery is becoming self- sustaining.
The S&P 500 recouped about two-thirds of last week’s 6.4 percent plunge, the biggest drop in a year. Waves of electronic selling helped push the Dow Jones Industrial Average down as much as 9.2 percent on May 6, the biggest drop since the crash of 1987, before paring losses.
All 10 industry groups in the S&P 500 rallied at least 2.5 percent today, led by gains of more than 5 percent in gauges of industrial and financial companies. General Electric Co., Cisco Systems Inc. and American Express Co. jumped more than 6.5 percent to lead the Dow Jones Industrial Average up as much as 454 points.
‘Rally Is Justified’
“The rally is justified,” said David Kelly, who helps oversee $445 billion as chief market strategist for JPMorgan Funds in New York. “All the actions taken by the European governments and the commitments by central banks were steps in the right direction. The market had sold off because of the fear that this financial crisis would get out of hand. Investors have a chance to look at the economic fundamentals in the U.S. now, which are good and expanding.”
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell as much as 37 percent to 25.68 after a record weekly gain last week. The index measures the cost of using options as insurance against declines in the S&P 500.
The euro climbed 0.8 percent to $1.2853, extending its two- day advance to almost 2 percent. The 16-nation currency is down almost 10 percent against the dollar this year.
‘Take the Measures’
For now, the rescue package “may be viewed as a positive and we may recover some of the losses we had in equities last week,”