US stocks jumped to their highest since July yesterday as the International Monetary Fund sought to help countries hit by the European debt crisis, while forecast-beating earnings from Goldman Sachs dispelled some worries over bank profits.
The stronger-than-expected earnings from Goldman Sachs followed disappointing results from Citigroup on Tuesday and JPMorgan Chase last week.
Goldman shares shot up 6.8 per cent to $104.31, while the S&P financial sector rose 1.7 per cent, leading the S&P 500 higher.
The banking sector has outperformed the broader market so far this year, but the financials sector was the S&P 500’s weakest-performing one last year.
While the Goldman results supported financial shares, the IMF’s willingness to bolster its crisis-fighting resources gave the sector a big push. Financials had suffered throughout 2011 on worries that Europe’s debt crisis would hit banks globally.
“Any time liquidity is added to the financial system, it gives financials a little bit of breathing room, and it will result in higher prices for the banks,” said Kevin Caron, market strategist at Stifel, Nicolaus & Co, in Florham Park, New Jersey.
The IMF is seeking to boost its war chest by $600bn to help countries reeling from the crisis, even though some nations insist Europe must first do more to support ailing members, according to sources.
Home builders’ shares surged after data showed US homebuilder sentiment unexpectedly jumped in January to its highest level in four and a half years. The PHLX housing index climbed 3.1 per cent, while the Dow Jones home construction index rose 4.4 per cent.
The Dow Jones industrial average rose 96.88 points, or 0.78 per cent, to 12,578.95 at the close. The Standard & Poor’s 500 Index was up 14.37 points, or 1.11 per cent, at 1,308.04. The Nasdaq Composite Index was up 41.63 points, or 1.53 per cent, to close at 2,769.71.
Despite the optimism over the IMF, investors watched cautiously as Greece and its creditors resumed negotiations on terms of a planned debt swap, hoping to overcome an impasse in talks and stave off a painful default.
The benchmark S&P 500 closed above 1,300, a key resistance point that analysts said signal more room to rally if the index stays there.