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Stocks jump on relief over gov’t debt auction – WallStreet

This article was posted on May 29, 2009 and is filed under Press Releases

NEW YORK (AP) — Investors are finding fresh reasons to bet on an economic rebound.

Stocks rose Thursday as gains in commodities like oil and natural gas signaled that traders expect a strengthening economy will demand more energy.

Robust demand at an auction for Treasury debt also eased fears that the government would have to pay higher interest rates to entice buyers. Higher rates on long-term bonds would also drive up borrowing costs for consumers buying cars and homes, which in turn could endanger an economic recovery.

It was the second straight day that interest rate movements called the shots in the stock market, and not likely the last. Analysts expect Wall Street will have to continue to grapple with worries that the government could eventually exhaust buyers’ appetite for debt with an unprecedented level of bond sales. Washington needs to raise the money to pay for its bank rescue plan and economic stimulus spending.

A jittery first half to the day’s trading follows a drop a big drop a day earlier triggered by a spike in long-term interest rates as the yield on the 10-year bond jumped to its highest rate in six months.

Traders say the fractiousness could continue as investors look for data to prove that their bets this spring on an economic recovery were correct. The Dow Jones industrial average is still up about 25 percent from 12-year lows in early March.

“The market is absolutely being held hostage to the data,” said David Joy, chief market strategist at Ameriprise Financial Inc.’s RiverSource Investments.

Joy pointed to the market’s immediate reaction after the Treasury auction Thursday of $26 billion in 7-year notes, part of the $101 billion in debt the government offered this week. “There was a real sigh of relief.”

In late afternoon trading Thursday, the Dow rose 91.60, or 1.1 percent, to 8,391.62. The broader Standard & Poor’s 500 index rose 12.00, or 1.3 percent, to 905.06, and the Nasdaq composite index advanced 16.14, or 0.9 percent, to 1,747.22.

The yield on the 10-year note, a key benchmark for home mortgages and other loans, fell to 3.66 percent from 3.75 percent the day before. The yield, which moves in the opposite direction from the price of the note, reached its highest level since November on Wednesday.

Investors saw a bigger appetite for oil, as well as a dip in weekly unemployment claims and improving demand for big-ticket manufactured goods, as reasons to believe the economy will start growing and lift demand for raw materials.

Light, sweet crude rose $1.63 to settle at $65.08 a barrel on the New York Mercantile Exchange, a six-month high. That sent energy stocks higher. Marathon Oil Corp. rose $1.83, or 6.3 percent, to $31.07, while XTO Energy Inc. rose $1.38, or 3.4 percent, to $42.55.

Stock trading was choppy for much of Thursday, with indicators falling in the early going on disappointing news on new home sales and foreclosures, while energy shares drew support from crude oil’s advance to a six-month high above $64 a barrel.

The government said sales of new homes edged up only 0.3 percent in April, less than analysts expected. A separate report showed that a record 12 percent of mortgage holders were behind or in foreclosure in the first quarter.

Investors were also focusing on General Motors Corp., which said a committee of bondholders agreed to a sweetened deal to erase some of GM’s unsecured debt in exchange for stock. The agreement may not prevent the automaker from seeking bankruptcy court protection, but investors are eager for any signs that a reorganization would be orderly. GM shares fell 2 cents to $1.13.

Homebuilder stocks fell after the disappointing reports on housing and as the prospect of higher interest rates stirred worries that already weak demand will worsen. The overall market is still keenly focused on the housing market, which analysts say must find a bottom before the broader economy can recover.

“We still have headwinds ahead, in terms of the housing market going down,” said Michael Sheldon, chief market strategist at RDM Financial Group. “And we don’t know how high the unemployment rate is going to peak.”

Among builders, Toll Brothers Inc. fell 66 cents, or 3.6 percent, to $17.37, while Beazer Homes USA Inc. fell 18 cents, or 7.1 percent, to $2.39.

In other trading, the Russell 2000 index of smaller companies rose 0.76, or 0.2 percent, to 490.62.

About three stocks rose for every two that fell on the New York Stock Exchange, where volume came to 977.7 million shares, compared with 917.9 million shares traded at the same time Wednesday.

The dollar was mixed against other major currencies. Gold prices rose.

Overseas, Britain’s FTSE 100 fell 0.7 percent, Germany’s DAX index fell 1.4 percent, and France’s CAC-40 slid 0.8 percent. Japan’s Nikkei stock average edged up 0.1 percent.

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