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US, European market indices up

06 October 2009 09:03 (UTC +04:00)

Baku - APA-Economics. A report that the service sector grew for the first time in more than a year gave investors a confidence boost and sent stocks higher.
Financial and energy stocks led the market Monday after Goldman Sachs raised its rating on large banks and oil rebounded from an early slide. Major stock indicators rose about 1 percent, including the Dow Jones industrial average, which added 125 points.
The Institute for Supply Management said its service index rose to 50.9 in September from 48.4 in August. Analysts polled by Thomson Reuters had expected a reading of 50, the dividing line between growth and contraction.
The index tracks more than 80 percent of the country’s economic activity and hasn’t grown since August 2008.
A measure of prices paid fell to 48.8 from 63.1 in August. That signals companies could be having a harder time holding prices in place as consumers struggle.
The report follows a two-week slide in stocks that came as reports on areas like manufacturing and consumer sentiment fell short of expectations.
Stocks have fallen in seven of the past eight days so some bounce in stocks wasn’t surprising. The Dow has lost 332 points, or 3.4 percent, in the past two weeks.
The advance came as trading volume was light, which can skew price moves. Bigger tests of the market will arrive in the coming weeks when companies begin turning in earnings reports for the July-September quarter.
Thomas J. Lee, chief U.S. equity strategist at J.P. Morgan, said the improvement in the service index is encouraging because it could help boost confidence in the economy, a key element of a sustainable recovery.
"We really have to see the animal spirits kick in in the next six months, which is confidence in both businesses and consumers," he said.
In late afternoon trading, the Dow rose 127.12, or 1.3 percent, to 9,614.79. The broader Standard & Poor’s 500 index rose 16.43, or 1.6 percent, to 1,041.64, and the Nasdaq composite index rose 23.20, or 1.1 percent, to 2,071.31.
Lee said the market’s two-week drop is a healthy sign of caution after stocks rose for seven months off of 12-year lows in March. He also said the mixed economic readings aren’t surprising and don’t mean the rally is over.
"We should be kind of looking for data to come in a little choppy because no recovery is going to be linear and smooth," he said.
A disappointing employment report Friday shook investors’ confidence. The Labor Department said employers cut more jobs in September than in August. Economists had expected cuts would decrease. A drop in unemployment is considered vital to a sustained recovery.
Investors could begin to get a better sense of the health of the economy on Wednesday when quarterly earnings reports start arriving. Aluminum maker and Dow component Alcoa Inc. kicks off earnings season, and investors will be looking for signs of growth to ease recent concerns about the strength of a rebound.
Adam Gould, senior portfolio manager at Direxion Funds in New York, said investors don’t want to be out of the market if corporate earnings reports come in better than forecast for the third quarter as they did for the first and second quarters.
Stocks fell 7 percent from mid-June to mid-July before companies posted earnings that topped analysts’ forecasts.
He doesn’t expect the market will carve massive gains before the end of the year because professionals who have ridden the surge since March 9 don’t expect the gains can continue at such a pace. Others who missed the rally are going to be hesitant to get in now.
"I see people being relatively conservative between now and the end of the year. If you missed the rally you missed it," Gould said. "It’s hard to buy stocks 45 percent off the lows."
Companies were able to mostly beat modest profit expectations in the second quarter primarily because of cost-cutting, including job cuts. Now traders will be looking for signs of growth in revenue to sustain improved earnings.
Financial stocks jumped after the Goldman upgrade. Wells Fargo & Co. rose $1.90, or 7.3 percent, to $28.18, while Bank of America Corp. rose 56 cents, or 3.4 percent, to $16.90.
Crude oil rose 46 cents to settle at $70.41 a barrel on the New York Mercantile Exchange as the dollar weakened. Commodities are priced in dollars, and a weak greenback makes them more appealing to foreign buyers. That lifted shares of energy and materials companies.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note was flat at 3.22 percent from late Friday.
The dollar fell against most other currencies, while gold prices rose.
Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 723.8 million shares compared with 988.6 million shares traded at the same point Friday.
The Russell 2000 index of smaller companies rose 11.35, or 2 percent, to 591.55.
Britain’s FTSE 100 rose 0.7 percent, Germany’s DAX index gained 0.8 percent, and France’s CAC-40 advanced 0.7 percent. Japan’s Nikkei stock average fell 0.6 percent. Source: AP