World Market Overview
U.S. stocks soared into the new month, rising more than 2% as investors looked for good news from Europe and found solace from the latest domestic economic numbers. The Dow Jones Industrial Average vaulted higher by 254 points, or 2.3%, to 11260 in Wednesday afternoon trading, while the Standard & Poor's 500 stock index gained 26 points to 1206, and the Nasdaq Composite added 55 points to 2553. The rally effectively wiped out November's sluggish performance, which saw the Dow finish 1% lower. The advances were broad and deep, with all 30 of the Dow's component stocks, all 10 of the S&P 500's sectors and all but 13 of its 500 stocks, trading in positive territory.
The CBOE Market Volatility Index, the fear index known as the VIX, plunged 11%. The rally began early, but got an extra boost around noon after Reuters reported the U.S. would commit more money to the International Monetary Fund to help with a broader stabilization package for Europe. Also helping the markets were data showing the U.S. added 93,000 private sector jobs in November the 10th consecutive month of gains and the largest one month gain in three years.
Separate data from the Labor Department showed productivity rising more than previously thought in the third quarter, as companies boosted output while also holding down labor costs. U.S. spending on construction projects also unexpectedly rose by 0.7% in October, for a second straight gain. Manufacturing numbers largely fell in line with expectations. Asian and European economic data also helped the bulls' cause. A U.K. manufacturing survey registered its highest reading in 16 years and Germany's retail sales jumped more than expected in October. Meanwhile, in China, two separate gauges of manufacturing activity posted increases in November.
On the corporate front, shares of State Street gained 4% after the firm said late Tuesday it would lay off 1,400 employees, or about 5% of its work force, as part of a long term restructuring plan. Bank of America recouped some of their losses a day after fears of the potential impact of leaked documents about the bank sent shares down 3.2%. Shares were up 1.8%.
European markets
European stock markets rallied Wednesday, as strong economic data from Europe and China helped push sovereign debt worries out of the spotlight. The Stoxx Europe 600 index closed up 2% at 267.11. Spanish stocks in particular posted big gains and banks across the continent surged as sovereign bond yields dropped from recent highs. The IBEX 35 index advanced 4.4%, recouping some of its recent losses. Spanish Prime Minister Jose Luis Rodriguez Zapatero announced new measures aimed at cutting government spending and boosting economic growth, including the privatization of the country's top two airports and tax breaks for small and medium sized companies.
Remarks from European Central Bank President Jean-Claude Trichet late Tuesday also helped fuel the Spanish rally, raising hopes that the ECB could step up purchases of troubled peripheral government bonds. The ECB's governing council will hold a policy meeting Thursday. Other peripheral markets also rebounded. Portugal's PSI 20 index gained 3%, Ireland's ISEQ advanced 1.5% and Greece's ASE Composite index rose 3.9%. Among the top regional indices, the U.K's FTSE 100 index rose 2.1% to 5,642.50, the French CAC 40 index climbed 1.6% to 3,669.29 and the German DAX 30 index advanced 2.7% to 6,866.63. The gains came after a slew of strong manufacturing data from China and Europe.
Figures from the U.K. were particularly robust, with the country's purchasing managers index hitting a 16-year high. Dixon expects the trend in markets over the next three months to be broadly upwards, but cautioned that sovereign worries will linger, creating more volatility in equities. Banking and insurance stocks rallied across the continent. In Madrid, shares in BBVA rose 7.3% and Banco Santander increased 7.2%. Shares in Societe Generale gained 4.5% in Paris, having dropped around 8% over the course of the previous three sessions. Royal Bank of Scotland Group, which has been hit hard in recent weeks because of its exposure to Ireland, climbed 6.1% in London.
Asian markets
Asian markets ended mostly higher after a choppy session Wednesday. China's Shanghai Composite rose 0.1% after three consecutive sessions of declines and Hong Kong's Hang Seng Index added 1.1%. Japan's Nikkei Stock Average rose 0.5% and South Korea's Kospi climbed 1.3%. China shares edged higher despite economic data spurring fresh tightening concerns.
Gains on the mainland market were curbed by concerns of possible further tightening measures after the release of two purchasing managers indexes, which both showed the expansion in China's manufacturing activity accelerated last month. Financial companies rebounded after recent losses. On the mainland market, ICBC, China's largest lender by assets, rose 2.1% after a 14% decline in the previous five sessions, and Shanxi Securities ended up 1.1% after a 7.7% drop in the past three sessions. In Hong Kong, property to ports conglomerate Wharf (Holdings) rose 7.1% after it said Tuesday it bought two parcels of land in Changzhou.
The strong China data helped to boost shares in South Korea, with robust export data adding an extra fillip to earnings growth expectations. Hyundai Motor added 3.8% and Kia Motors rose 3.2%. Tokyo stocks gained as the negative effect of a stronger yen was offset by dip buying in exporters such as Honda Motor, Toyota Motor, and Sony after the market's sharp fall Tuesday. Honda closed up 2.3% while Toyota added 2.8%. Sony shares were bid up for the third straight day, closing up 1.5%, partially on expectations for the year-end shopping season.
Base metals
Base metals closed higher on the London Metal Exchange Wednesday after gaining ground throughout the session on a stronger euro and a string of upbeat economic numbers. New U.S. private sector payrolls data boosted investor sentiment, with an improving employment picture viewed by the markets as a sign the economic recovery is somewhat on track, a London trader said.
The figures were complemented minutes later by a U.S. government report showing productivity grew at a 2.3% annual rate in the third quarter, an upward revision from the 1.9% first reported. China's purchasing managers' index climbed to a seven month high in November, easing fears of steep economic slowdown in the world's top metal consuming economy. Manufacturing data from Taiwan were also upbeat, showing activity expanded for the first time in four months in November.
Crude futures rose above $86 a barrel Wednesday as improving data in the U.S. and China boosted hopes for oil demand. Light, sweet crude for January delivery settled $2.64 higher at $86.75 a barrel on the New York Mercantile Exchange. The rally began early Wednesday, as investors cheered data on China's manufacturing sector as an encouraging sign of future oil demand in the world's second largest consumer of crude.
Economic reports from the U.S. also bolstered confidence in crude demand. U.S. productivity posted a larger-than-expected rise in the third quarter, and a separate report showed private sector jobs in the U.S. jumped by 93,000 last month, the largest monthly gain in three years. A weaker dollar also supported gains for crude.
Gold futures rose as the dollar declined, but gains were modest as the metal's safe haven appeal was tarnished by positive macroeconomic data from China, Europe, and the U.S. Gold for February delivery added $2.20, or 0.2%, to settle at $1,388.30 an ounce on the Comex division of the New York Mercantile Exchange. That was the highest close for a most active gold contract in two weeks and also a third straight advance for the metal.
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