Tuesday, 8 November 2011

U.S. Stocks, Euro Gain as Berlusconi to Quit After Austerity Plan Approved

U.S. stocks and the euro rose, erasing earlier losses, as Italian Prime Minister Silvio Berlusconi’s offer to resign bolstered optimism a new leader will be able to tame the nation’s debt crisis. Commodities rallied and Treasuries reversed gains.
The Standard & Poor’s 500 Index climbed 1.2 percent to close at 1,275.92 at 4 p.m. in New York after slipping as much as 0.5 percent earlier. The euro appreciated 0.5 percent to $1.3839 as the shared currency climbed against 11 of 16 major peers. The S&P GSCI Index of commodities rose 0.8 percent as oil climbed to a more than three-month high. Ten-year Treasury yields gained four basis points to 2.08 percent after losing as much as four basis points.
Berlusconi agreed to step down when the parliament approves Italy’s austerity plans in a vote next week. Italian 10-year bond yields climbed to a euro-era record of 6.77 percent earlier as Berlusconi won a budget vote without an absolute majority as some lawmakers who opposed him abstained, triggering questions over who will lead the nation as it seeks to prevent the European debt crisis from spreading.
“The change in leadership is a sigh of relief for the market,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a telephone interview. “A regime change might be part of the solution," he said. "We need to look at what’s plan B and C that the new leadership will bring so that the market can continue moving higher.”

Banks Lead Advance

Financial shares climbed 1.9 percent as a group to lead gains among all 10 of the main industries in the S&P 500Wells Fargo & Co. jumped 4.4 percent and JPMorgan Chase & Co. climbed 2.3 percent to pace the advance. 3M Co., Wal-Mart Stores Inc. and Intel Corp. climbed at least 1.9 percent to help lead the Dow Jones Industrial Average (INDU)up 101.79 points, or 0.8 percent, to 12,170.18.
U.S. benchmark indexes rebounded for a second day following their first weekly declines since September. The S&P 500 has rallied 15 percent from a 13-month low on Oct. 3 amid better- than-forecast earnings and economic data and growing confidence that Europe will halt the spread of the debt crisis
Wheat, zinc and sugar rose at least 2.3 percent to lead an advance in 15 of 24 commodities tracked by the S&P GSCI Index, which climbed to the highest level since Sept. 8 on a closing basis. Oil for December delivery rose $1.28 to $96.80 a barrel on the New York Mercantile Exchange, the highest settlement since July 28.
U.S. Treasuries had gained earlier on concern Italy’s sovereign-debt problems may spread to other nations and as European Central Bank council member Jens Weidmann said the ECB can’t bail out governments by printing money. A $32 billion auction of three-year Treasuries attracted the highest demand since at least 1993. Existing three-year note yields were little changed at 0.38 percent.

European Shares

Earnings reports helped Europe’s benchmark stock index maintain gains earlier amid uncertainty about Italy’s leadership. The Stoxx Europe 600 Index ended up 0.9 percent after paring a rally of as much as 2 percent.
Vodafone Group Plc (VOD) gained 1.8 percent after increasing its full-year earnings forecast as profit beat analysts’ estimates. Repsol YPF SA climbed 6.3 percent after raising its prediction for recoverable reserves in Argentina. Banks rallied as Societe Generale (GLE) SA, France’s second-biggest bank, and Lloyds Banking Group Plc, the largest mortgage lender in the U.K., both gained more than 4.3 percent.
SocGen, France’s second-largest bank, said net income dropped 31 percent to 622 million euros, hurt by a writedown of Greek government debt and lower trading revenue. The shares rose as the company accelerated the reduction of its balance sheet and decreased U.S. dollar financing needs.

‘Seen as a Liability’

Berlusconi’s resignation offer came after the prime minister failed to muster an absolute majority on a routine parliamentary ballot, obtaining only 308 votes in the 630-seat Chamber of Deputies. Calls for him to step down intensified as the nation’s bond yields climbed to near the 7 percent level that drove Greece, Ireland and Portugal to seek international bailouts. The extra premium investors demand to hold the debt instead of German bunds widened to a record 497 basis points.
“Berlusconi was increasingly seen as a liability by his European peers in Germany and France but also the European Central Bank,” Jan Randolph, head of sovereign risk analysis at IHS Global Insight inLondon, told Bloomberg Television. “He couldn’t carry through the reforms that he promised. He’s had over two decades at the helm governing Italy and avoided reform, and now it’s crunch time.”

Rescue Fund

European finance ministers pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the front lines until then in the fight against the debt crisis. Greece was ordered to provide written acceptance of bailout terms in order to win an 8 billion-euro ($11 billion) loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality.
The MSCI Emerging Markets Index was little changed as benchmark indexes in Argentina and Chile rose at least 0.6 percent, while stocks slipped in South Korea, turkey and China. South Korean chipmakers including Samsung Electronics Co. retreated as prices for dynamic random access memory declined.
To contact the reporters on this story: 
Michael P. Regan in New York atmregan12@bloomberg.net
Rita Nazareth in New York atrnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker atnbaker7@bloomberg.net