Stocks Move up; Bernanke keeps rates Low
U.S. stocks rallied, halting a global retreat, after Federal Reserve Chairman Ben S. Bernanke said the central bank will keep interest rates low to ensure the economic recovery. Ten-year Treasuries erased gains after a record-tying $42 billion sale of five-year notes.
The Standard & Poor’s 500 Index jumped 1 percent to 1,105.24 at 4:05 p.m. in New York, its biggest gain in more than a week. The MSCI World Index of stocks in 23 developed nations reversed a 0.5 percent retreat to gain 0.2 percent. The MSCI Emerging Markets Index fell 0.8 percent as political tension in Turkey and Greece rattled investors. The two-year Treasury note’s yield rose for the first time in four days, gaining 0.03 percentage point to 0.86 percent. The Dollar Index held near an eight-month high.
Bernanke told Congress that while policy makers will need to tighten monetary policy at some point, the “nascent” economic rebound still requires low interest rates for an extended period. An unexpected drop in new U.S. home sales to a record low underscored the vulnerability of the recovery. Stocks extended gains as the Senate approved a $15 billion plan to give companies tax breaks for hiring the unemployed.
“The market has been appeased by Bernanke’s comments, which broke no new ground,” said Michael Strauss, who helps oversee about $25 billion at Commonfund in Wilton, Connecticut. “The Fed is not ready to withdraw the extended-period phrase because they’re still worried about the fragile nature of the recovery.”
Record-Low Fed Rate
The U.S. central bank has left the federal funds rate, the target for interest rates on overnight loans between banks, at a record low near zero for more than 14 months to bolster the economy. The Fed is wrestling with unwinding economic stimulus programs without worsening an unemployment rate that the Fed forecasts at 9.5 percent to 9.7 percent in the fourth quarter.
The jobs bill that passed 70-28 today in the Senate now goes to the House where Democratic leaders must decide whether to pass it without changes or to try to merge it with a $150 billion jobs plan the House approved in December.
Nine of 10 industry groups in the S&P 500 advanced, led by a 1.7 percent rally in financial firms and gains of more than 1 percent in consumer-discretionary and technology companies. JPMorgan Chase & Co. and Bank of America Corp. advanced more than 2.4 percent. Autodesk Inc., the biggest maker of engineering-design software, rallied 8.7 percent after results topped analyst estimates.
Treasuries 10- and five-year notes fell after the five-year auction, the last of four sales totaling an unprecedented $126 billion for a single week. The current five-year note yield rose less than one basis point, or 0.01 percentage point, to 2.35 percent. It earlier fell two basis points.
The Dollar Index, which gauges the currency against six major U.S. trading partners, slipped less than 0.1 percent to 80.818 after climbing to the highest level since June yesterday.
Europe’s Dow Jones Stoxx 600 Index rose 0.2 percent after Bernanke’s remarks and better-than-estimated results at Rhodia SA and Fresenius Medical Care AG.
Turkish stocks slumped the most in almost three weeks, with the ISE National 100 Index losing 3.4 percent to extend this week’s retreat to 6.9 percent. Turkey’s army, which has ousted four governments since 1960, called the detention of retired officers over an alleged coup plot a “serious situation” that deepened strains with Prime Minister Recep Tayyip Erdogan.
Russia’s Micex Index dropped 1.4 percent, the most since Feb. 12, as trading resumed after a two-day holiday.
Greek bonds slumped, sending the premium investors demand to hold the nation’s 10-year debt instead of German government bonds to the widest level in two weeks. Greek two-year bond yields rose 21 basis points to 5.74 percent and the spread over German two-year debt increased 23 basis points to 475 basis points. The yield spread widened to an 11-year high of 564 basis points on Feb. 8. The 10-year spread climbed to 339 basis points.
Greece’s unions are striking for a second day to protest measures designed to cut Europe’s biggest budget deficit.
The cost of protecting against default on European government debt rose on concern Greece will have trouble financing its debt after the credit ratings of the nation’s biggest banks were downgraded by Fitch Ratings yesterday because of “weakening asset quality and profitability.”
Credit-default swaps on Greece climbed 12 basis points to 382, according to CMA DataVision prices at 3:30 p.m. in London. Contracts on Portugal jumped 9 to 179, Spain increased 5.5 to 133.5 and Italy rose 4 to 130, CMA prices show.
The MSCI Asia Pacific Index fell 1.1 percent. Nissan Motor Co., which gets 35 percent of revenue in North America, sank 3.4 percent in Tokyo. Hyundai Motor Co., South Korea’s biggest carmaker, declined 2.6 percent after announcing a recall.