U.S. Stocks

U.S. stocks rose Monday, helped by late-session reports that detailed some of the options for Europe's bailout fund. The Dow Jones Industrial Average finished with a gain of 85.15 points, or 0.71%, to 12068.39, after falling by more than 100 points midsession. The Standard & Poor's 500-stock index added 7.89 points, or 0.63%, to 1261.12. The modest gains were enough to move the broad market measure back into the black for 2011, now up 0.28% year to date.

The Nasdaq Composite rose 9.10 points, or 0.34%, to 2695.25. Stocks were pushed and pulled Monday by a handful of political developments across the Atlantic, with fresh worries over Italy's fiscal health and word of France's new austerity plan driving U.S. indexes lower early in the session.

But the loss evaporated in light afternoon trading after reports that the euro area's rescue plan may be designed to include external capital sources via an investment fund that would buy sovereign bonds in the primary and secondary markets. A below-average 3.4 billion shares changed hands in New York Stock Exchange composite volume as of 4 p.m.

Health-care stocks, considered one of the more defensive areas of the market, led the S&P 500 higher, while financial and industrial stocks were weakest. Home Depot was one of the blue-chip Dow's upside leaders, boosted by an investment-rating upgrade by RBC Capital Markets.

The analysts credited what they called a "reasonable" valuation and stronger signs in the home-improvement sector. Shares added 2.6%. Jefferies Group, whose shares were wracked by sovereign-debt fears last week, gained 1.4%.

The company reduced its gross holdings of the sovereign securities of Portugal, Italy, Ireland, Greece and Spain by 49.5% since the close of business Friday, a move it said resulted in no meaningful profit or loss. Biotechnology company Amgen rose 5.9% after disclosing plans to sell senior unsecured bonds and to buy back up to $5 billion of its shares, or roughly 10% of shares outstanding.

Shares of American Dental Partners soared 79% after the dental-office operator said it agreed to be acquired by private-equity firm JLL Partners in a deal valued at $398 million. American Dental also reported third-quarter earnings that topped estimates. Force Protection surged 31% after the military vehicle maker agreed to be bought by General Dynamics for approximately $360 million. Force Protection also reported third-quarter results that exceeded estimates.

E.U. Stocks

European stock markets ended lower Monday after a choppy session, hurt by rising fears about Italy's ability to meet its debt obligations and weak euro-zone economic data.

The Stoxx Europe 600 index fell 0.6% to 238.44 after dropping 3.7% last week. France's CAC-40 index declined 0.6% to 3103.60, the U.K.'s FTSE 100 index slipped 0.3% to 5510.82, and the DAX 30 lost 0.6% to 5928.68.

Bucking the negative trend, Italy's FTSE MIB index rose 1.3% to 15548.94, even as worries grew about the country's debt burden. Italian stocks appeared to get support from speculation on Monday that Silvio Berlusconi would step down as prime minister, though he denied the rumors.

He is facing a budget vote in parliament this week and seeing rebellion within his own party that has led to questions about whether he can hold his majority coalition. Yields on Italian government debt hit euro-era highs as bond prices fell. In intraday trading, Italy's two-year yield rose 0.6 percentage point to 6.04%, the five-year yield climbed 0.37 percentage point to 6.56%, and the 10-year yield hit 6.63%. Yields tightened a little and stocks moved higher following reports that Berlusconi's resignation was imminent, but these were subsequently denied and stocks gave up some ground.

European Central Bank board member Yves Mersch said in an interview with Italian newspaper La Stampa that the bank had discussed ceasing purchases of Italian debt if the government didn't provide sufficient evidence that it will stick to its reform plans. Weak euro-zone data added to the overall gloom.

Retail sales in the euro bloc fell 0.7% in September from August, against expectations of a 0.1% drop. German industrial production also came in worse than expected, with production down 2.7% in adjusted terms in September compared with the previous month, against expectations of a 0.9% decline.

Morgan Stanley downgraded its stance on European equities to "underweight" from "neutral." It said the move "reflects our base-case assumption that the overall macro environment is becoming increasingly difficult, equities are not particularly cheap and no big policy breakthrough appears to be imminent." Societe Generale analyst Michala Marcussen said in a note that she expects a recession in the euro area next year, triggered by the "high level of financial stress" arising from Greece and Italy. Marcussen said she expects no growth in the euro zone in 2012.

Still, in Athens the ASE Composite index rose 1.4% Monday on news that Greek Prime Minister George Papandreou will step down and make way for a unity government. Shares of Alpha Bank rose 6.9%, while National Bank of Greece added 5.4%. In France, the financial sector was weak. Credit Agricole dropped 2.5% and Societe Generale slid 2.4%. In Germany, Bayer rose 2.5%. The German chemicals and pharmaceuticals company said Friday that U.S. authorities approved its blood thinner Xarelto as a treatment to prevent strokes. Finance Director Werner Baumann said in a weekend interview that the company has increased its cash reserves to brace for a possible economic downturn.

Asia-Pacific Markets

Asia markets ended mostly lower Monday, with the region's exporters among the decliners, with many investors keeping to the sidelines as Greek politicians continued efforts to avoid a disorderly debt default and as Italy moved into the spotlight.

Hong Kong's Hang Seng Index lost 0.8%, while China's Shanghai Composite declined 0.7%. Japan's Nikkei Stock Average shed 0.4%, and South Korea's Kospi finished down 0.5%. Markets in Singapore, Malaysia, the Philippines and India were closed for holidays.Many exporters, resources and financial companies in the region fell amid the euro-zone uncertainty.

Honda Motor lost 1.1% in Tokyo, Samsung Electronics fell 1.2% and Shinhan Financial shed 0.7% in Seoul, while in Taiwan, Fubon Financial slid 1.0%. While Jiangxi Copper's Hong Kong and Shanghai shares lost 1.4% and 2.1% respectively. Earnings reports remained a key focus for many investors as they looked for cues to the next year amid a difficult economic environment.

In Tokyo, Takeda Pharmaceutical lost 2.3% after the firm cut a third off its fiscal year profit outlook as it absorbs amortization costs following its $13.7 billion acquisition of Swiss drug maker Nycomed. Asahi Glass dropped 6.2% after cutting its operating profit guidance to Y170 billion from Y200 billion on Friday.

But Osaka Securities Exchange closed up 7.3% on brisk volume after reports the Tokyo Stock Exchange and the OSE have entered the final stages of talks to integrate operations, with a merger expected around autumn 2012. On the mainland, property developers led losses after Chinese Premier Wen Jiabao was cited by Phoenix TV Monday as saying the country must resolutely carry out its property tightening measures and the government aims for prices to return to "reasonable levels."

In Shenzhen, China Vanke ended down 2.0%, while Shanghai-listed Gemdale shed 3.8%. In Hong Kong, China Overseas Land fell 4.8% and China Resources Land was down 2.4%. On the upside, Tingyi (Cayman Islands) Holding tacked on 9.4% after saying Friday its joint venture with Asahi Group Holdings has entered a partnership with PepsiCo Inc., which includes the acquisition of Pepsi's Chinese bottling operations.

Commodities

Base metals closed mostly lower on the London Metal Exchange Monday amid persistent worries over the euro zone, with eyes this session turning from Greece to Italy, and analysts say caution remains over the metals' short-term outlook as world markets remain on tenterhooks. Italy was in the spotlight ahead of a key budget vote Tuesday that could confirm Prime Minister Silvio Berlusconi's government longer commands a majority in Parliament, according to The Wall Street Journal.

Jitters drove Italian 10-year government bond yields to 14-year highs, and triggered selling across regional equity markets. Base metals are sensitive to economic news and forecasts as they are widely used in manufacturing and construction. LME three-month copper closed the PM kerb at $7,825 a metric ton, down 0.6% on the day. Across the Atlantic, fears remain over the health of the U.S. economy. Three-month aluminium has fallen 14% since the start of the year, while three-month zinc is down 20%.

Crude-oil futures rose to a high above $95 a barrel Monday, building on a strong previous week as traders wait for outlooks from the U.S. government and international oil observers and tracked developments in the euro zone. Crude for December delivery advanced 76 cents, or 0.8%, to $95.02 a barrel on the New York Mercantile Exchange after touching a high of $95.66 earlier.

Gold futures climbed Monday to top $1,780 an ounce as ongoing concerns over the euro-zone debt crisis and reports that Germany rejected calls to use its gold reserves to help shore up the region's rescue fund helped boost the safe-haven appeal of the metal.

Prices stood poised to close at their highest level in more than six weeks, as gold for December delivery rose $30.90, or 1.9%, to $1,787 an ounce, trading just shy of the session's high of $1,787.10. Raw-sugar futures fell amid weakness in a number of markets today amid heightened fears about Italy. March-delivery raw sugar on the ICE ended down 1% at 25.32c/pound.

http://www.morrisonsecurities.com/MarketSummary.aspx