THE Dow and the Standard & Poor’s (S&P) 500 posted their biggest gains in three months yesterday as efforts to resolve the European Union’s debt crisis helped push the S&P above 1,200, an important technical level that signals the potential for the rally to continue.
The S&P 500 moved out of its recent trading range as some of the panic of previous days eased. Investors focused on valuations that many analysts say are cheap, but volume was average in a sign fund managers were not fully participating.
Economically sensitive cyclicals led a broad rally. Aluminum producer Alcoa Inc rose 3.4 per cent to $13.57, while Home Depot Inc, whose fortunes are tied to the US consumer, jumped 4.6 per cent to $31.61.
Stocks rallied as speculation grew that the European Central Bank could step up its purchases of government debt and a US official said Washington would support boosting an EU rescue facility via IMF funds.
"It seems that as bad as Europe's issues are, there is a growing sense this is not a systemic problem that is going to bring the whole system down," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Beyond their troubles, we're seeing strong results in other parts of the world."
The global economic recovery remained sound. US private-sector payrolls achieved their biggest gain in three years, according to ADP data, while global manufacturing picked up speed, boosted by China and Germany.
The US-traded-stock of Banco Santander, the Spanish bank in the eye of the euro storm, jumped 7.9 per cent to $10.38. US investors have sold the stock relentlessly in recent weeks, turning it into a proxy for Eurozone risk aversion.
The Dow Jones industrial average gained 249.76 points, or 2.27 per cent, to 11,255.78. The S&P 500 rose 25.52 points, or 2.16 per cent, to 1,206.07. The Nasdaq Composite Index added 51.20 points, or 2.05 per cent, to 2,549.43.
Volume was moderate, with 8.29bn shares traded on the New York Stock Exchange, the American Stock Exchange, and the Nasdaq, compared with an average of 8.48bn so far this year.