Stocks Climb as Earnings, Data Top Estimates; Treasuries Drop

By Kelly Bit and David Merritt

Aug. 2 (Bloomberg) -- Stocks rallied, sending the MSCI World Index to an 11-week high, oil surged above $81 a barrel and Treasuries fell following better-than-estimated earnings and growth in U.S. manufacturing and construction spending.

The MSCI gauge of 24 developed nations jumped 2.4 percent to its highest level since May 13 and the Standard & Poor’s 500 Index rose 2.2 percent to 1,125.83 at 4 p.m. in New York, adding to gains from its best month in a year. Copper rose to the highest price since April. The dollar weakened against all of 16 major counterparts, with the pound climbing above $1.58 for the first time in six months. The 10-year Treasury note fell, sending its yield up 6 basis points to 2.96 percent.

Humana Inc., HSBC Holdings Plc and BNP Paribas SA today joined about 65 percent of MSCI World companies that have topped earnings estimates so far in the reporting season, data compiled by Bloomberg show. Stocks also gained as U.S. manufacturing grew faster than estimated and construction spending increased, while weakening economic data in China triggered speculation the government will ease efforts to cool the nation’s expansion.

“The earnings -- all I’ve seen is good news, continued strength,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. “The markets believe the Chinese central bank has their economy under control and it has been a purposeful slowdown.”

July Rally Extended

The S&P 500 added to July’s 6.9 percent rally, climbing to its highest close since May 17 and above its 200-day average near 1,115, a bullish sign to investors whose trading decisions are influenced by chart patterns. Alcoa Inc., Exxon Mobil Corp. and JPMorgan Chase & Co. climbed at least 3.4 percent to lead gains in all 30 stocks in the Dow Jones Industrial Average, which surged 208.44 points, or 2 percent, 10,674.38.

The S&P 500 today erased its 2010 loss, leaving it up 1 percent on the year. The Dow is up 2.4 percent year-to-date.

Earnings per share have topped estimates at about three- quarters of the more than 300 companies in the S&P 500 that have reported second-quarter earnings since July 12, according to data compiled by Bloomberg. Earnings have grown 56 on average and sales are up 11 percent for the group, the data show.

The Institute for Supply Management’s manufacturing gauge fell to 55.5 in July from 56.2 a month earlier. A reading greater than 50 points to expansion and economists had forecast the measure would drop to 54.5, according to the median estimate in a Bloomberg survey. The group’s bookings gauge, considered a leading indicator, fell to a one-year low.

Economic Rebound

Construction spending unexpectedly grew 0.1 percent in June, Commerce Department data showed. Economists on average had forecast a 0.5 percent decrease.

Today’s data eased concern that the economic rebound is weakening after the government reported on July 30 that U.S. growth slowed to 2.4 percent in the second quarter from 2.6 percent in the first three months of the year.

Federal Reserve Chairman Ben S. Bernanke said today that rising wages would probably spur household spending in the next nine months, even as a lack of new jobs weighs on consumer confidence.

While the U.S. has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth,” Bernanke said today in a speech in Charleston, South Carolina.

The cost to protect against defaults on U.S. corporate bonds fell to the lowest since May 12, trading in a benchmark credit-derivatives index shows. The Markit CDX North America Investment Grade Index Series 14 declined 5.3 basis points to a mid-price of 99.06 basis points, according to Markit Group Ltd.

Dollar Slumps

The dollar fell the most against the Norwegian, Swedish and British currencies, declining at least 1.3 percent versus each. The euro strengthened 0.9 percent to $1.3173, the highest since May 4.

Basic-resources companies and banks led gains in all 19 industry groups in the Stoxx Europe 600 Index. BHP Billiton Ltd., the world’s largest mining company, jumped 4.3 percent in London.

HSBC, Europe’s biggest bank, said pretax profit more than doubled to $11.1 billion in the first half, while BNP Paribas posted a 31 percent increase in net income as provisions for bad loans dropped. HSBC surged 5.3 percent, as did BNP Paribas, France’s biggest lender.

Companies are having a “blockbuster earnings season,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors.

Asian Markets

The MSCI Asia Pacific Index climbed 1.3 percent, extending four consecutive weekly gains. Honda Motor Co., Japan’s second- largest automaker, and Hitachi Ltd. climbed at least 4 percent after boosting forecasts. Hyundai Mobis, South Korea’s largest auto-parts maker, jumped 8.6 percent after profit rose.

China’s Shanghai Composite Index gained 1.3 percent to its highest level since May 24 on the prospect the government will reverse policies aimed at slowing the world’s third-biggest economy after manufacturing expanded by the least in 17 months.

“We’ll probably get a continuing soft patch for another month or so,” Sean Darby, chief Asian equity strategist at Nomura Holdings Inc. in Hong Kong, said in a Bloomberg Television interview. “The urgency for more threatening measures to cool part of the economy down will recede.”

European Growth

China’s economy is also still powering Europe, reports today showed. Euro-region manufacturing expanded faster than initially estimated in July, Swiss manufacturing grew the most on record and U.K. activity slowed less than economists had forecast.

The German 10-year bund yield climbed 3 basis points to 2.69 percent, and the yield on the equivalent-maturity U.K. gilt advanced 2 basis points to 3.34 percent. The pound climbed to as much as $1.5907.

Russia’s Micex Index of stocks surged 2.3 percent to the highest level since April 30. The MSCI Emerging Markets Index rallied the most since June 21, climbing 2.1 percent to a three- month high. Hungary’s BUX Index jumped 4 percent, while Poland’s WIG20 advanced 2.7 percent.

Copper for delivery in September climbed 2.4 percent to $3.3895 a pound in New York and touched $3.3965, the highest since April. Zinc and lead were the biggest gainers on the London Metal Exchange, rising at least 4.8 percent.

Crude oil for September delivery advanced 3.2 percent to $81.46 a barrel on the New York Mercantile Exchange, topping $81 a barrel for the first time since May as the rally in stocks stoked speculation the economy is strengthening.

Wheat jumped to a 22-month high, surging 4.8 percent, to close at $6.9325 a bushel in Chicago, after the hottest July in Russia in 130 years withered crops and boosted demand for shipments from the U.S., the world’s biggest exporter. Rice and oats also climbed.