US STOCKS soared more than two per cent in a broad rally yesterday as a merger between two big Greek banks provided a rare bit of encouraging news out of debt-stricken Europe.
A rebound in consumer spending calmed fears of a new US recession and also helped lift all 10 S&P sectors. Only five S&P stocks ended in negative territory while the CBOE Volatility index, a measure of investor fear, lost 9.3 per cent. But volume was low, amplifying the surge in shares.
Financial stocks were the top gainers after Greek banks Alpha and EFG Eurobank sealed a merger with help from Qatar, shoring up a sector battered by the Eurozone’s debt crisis.
Insurers also rose sharply as property damage from Hurricane Irene was less than feared, according to early estimates.
The Greek deal consolidates the number of weak banks in the region and reduces the risk from one potential flashpoint that could reignite the Eurozone debt crisis, which has been hanging over the global financial system. In addition, the foreign investment is a sign that investors view the region as undervalued.
“Many have come to see Greece as a lost cause, so to have a merger potentially making a strong (bank) in Greece indicates that it isn’t as dire a situation as might otherwise have been assumed,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio.
With public transport still struggling to return to service in New York on Monday after the area’s brush with Hurricane Irene, many Wall Street firms were understaffed, contributing to the lightest volume in a month. About 6.5bn shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year’s daily average of 8.47bn.
The Dow Jones industrial average was up 254.71 points, or 2.26 per cent, at 11,539.25. The Standard & Poor’s 500 Index was up 33.28 points, or 2.83 per cent, at 1,210.08. The Nasdaq Composite Index was up 82.26 points, or 3.32 per cent, at 2,562.11.
Consumer spending saw its largest rise in five months in July, suggesting the economy is not falling back into recession.