US stock lift shows hope for debt plan

US stocks rose yesterday as investors bet European leaders would take strong steps this week to end the region’s debt crisis, including bolstering its financial rescue fund.

The latest source of optimism came from a Financial Times report that European leaders will discuss boosting the firepower of the Eurozone’s rescue fund at the summit. The report cited senior European officials.

At the summit on Thursday and Friday, France and Germany are expected to try to force changes to EU rules to impose mandatory penalties on countries that exceed deficit targets in hopes of restoring market confidence.

“People are expecting something big and bold is going to get proposed so people are sanguine that something good is going to come out of this,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

Optimism over Europe coming to grips with its debt crisis was reflected in a sharp slide of Italian and Spanish bond yields in recent sessions away from levels that many traders see as unsustainable.

“What you have to look at is where bonds are trading, so if the news isn't impacting peripheral European sovereign debt, if it’s unaffected by the news, it’s not going to affect equities,” Massocca said.

Yesterday’s gains came as investors shrugged off a warning from Standard & Poor’s on Monday that it may cut the sovereign credit rating of 15 Eurozone countries. The rating agency threatened yesterday to cut the credit rating of the Eurozone’s financial rescue fund.

“You throw in potential downgrades on 15 out of 17 European countries, and it is encouraging for the market to show this much resilience,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research, in Cincinnati.

The Dow Jones industrial average gained 52.30 points, or 0.43 per cent, to 12,150.13. The Standard & Poor’s 500 Index added 1.39 points, or 0.11 per cent, to 1,258.47. But the Nasdaq Composite Index dropped 6.20 points, or 0.23 per cent, to 2,649.56.

In an interim report, European Council President Herman Van Rompuy told EU leaders tighter oversight of Eurozone fiscal policy can be achieved through minor rapid adjustments to the EU treaty.

General Electric was the Dow’s top percentage gainer, climbing 2.4 percent to $16.72 after Bernstein upgraded the stock to “outperform”.