Stocks surge as hopes build for a resolution of Ireland’s debt woes; GM shares bound higher

Stephen Bernard, AP Business Writer, On Thursday November 18, 2010, 1:52 pm

NEW YORK (AP) — Stocks bounded higher Thursday on strong interest in General Motors’ initial public offering and growing confidence that Ireland will resolve its debt crisis.

The Dow Jones industrial average jumped 180 points in afternoon trading, following European markets higher. U.S. shares got another boost after from a surprisingly strong reading on regional manufacturing from the Federal Reserve Bank of Philadelphia.

Christian Hviid, chief market strategist at Genworth Financial Asset Management, said the Philly Fed report was particularly surprising because a similar report Monday from Federal Reserve Bank of New York was so disappointing.

Industrial and materials stocks rose after the manufacturing report. Alcoa Inc. jumped 4.3 percent, while General Electric Co. and Caterpillar Inc. each rose about 2 percent. All 30 of the stocks that make up the Dow rose except for Intel Corp. and Home Depot Inc. Sears Holdings Corp. sank 5.6 percent after reporting that its loss nearly doubled in the third quarter on weak sales.

Markets have been roiled since last week by fears that Ireland would become the next European country to need a bailout. Greece came close to fiscal collapse in May and had to be rescued by other European countries and the International Monetary Fund. Fears that Greece’s fiscal morass would undermine the euro and lead to bailouts of other European countries brought stock prices down around the world in May and early June.

Signs of progress in talks among Irish and European officials Thursday gave investors hope that the country would reach a deal soon with the European Union and the IMF to shore up its finances. Ireland has nationalized three of its six local banks following a collapse of the country’s real estate market.

Ireland is also expected to accept a loan worth tens of billions of euros from Great Britain. While Britain isn’t one of the 16 nations that uses the euro, its banks have large holdings of Irish government debt and would face major losses if the country defaulted.

The Dow rose 180.73, or 1.6 percent, to 11,188.61 in afternoon trading. The big gains Thursday erase nearly all the losses that piled up so far this week, including a 178-point loss Tuesday.

The Standard & Poor’s 500 index rose 20.86, or 1.8 percent, to 1,199.45. The Nasdaq composite index rose 46.99, or 1.9 percent, to 2,523.00.

With Thursday’s gains, the Dow and S&P 500 are nearly flat for the week. The Nasdaq is up 0.3 percent.

The euro rose against the dollar as assurance grew that Ireland would resolve its debt problems. Major European stock indexes rose between 1 and 2 percent. The dollar fell against other currencies, commodities prices rose and Treasury prices fell as traders became more comfortable taking on risk.

General Motors’ IPO was a hit on the New York Stock Exchange. Shares of the industrial giant, which emerged from bankruptcy after a taxpayer-funded bailout, jumped $1.77 to $34.77, about 5.4 percent above its initial offering price of $33. GM executives rang the opening bell on the NYSE.

The jump in U.S. stock indexes comes after a weeklong slump caused by escalating worries over Ireland’s debt situation and signs that China would take more steps to slow down its supercharged economy, which would weaken demand for basic materials and industrial goods. Investors feared that a bailout of Ireland could drive up borrowing costs for other weak European nations like Portugal, Spain and Greece.

Overseas markets also rose. Britain’s FTSE 100 rose 1.3 percent. Germany’s DAX index and France’s CAC-40 each jumped 2 percent. Japan’s Nikkei rose 2.1 percent.

Bond prices retreated, pushing their yields higher. The yield on the 10-year Treasury note rose to 2.94 percent from 2.87 percent late Wednesday. The yield on the note, which is a widely used benchmark for consumer and business loans, traded as low at 2.49 percent on Nov. 4.

Rising bond yields are a sign that investors are more confident in economic growth and more willing to hold riskier assets such as stocks and commodities. The Federal Reserve has been buying Treasurys since Nov. 3 in an effort to keep interest rates low and encourage borrowing. However its $600 billion program has been criticized at home and abroad as a risky move that could bring on inflation or more speculative bubbles.

Source: Yahoo finance

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