European debt deal lifts Dow by almost 340 points

A pair of traders work on the floor of the New York Stock Exchange Thurs­day, Oct. 27, 2011. (AP Photo/Richard Drew)

DAVID K. RANDALL, STAN CHOE

AP Busi­ness Writers

NEW YORK (AP) — An agree­ment to con­tain the Euro­pean debt cri­sis elec­tri­fied the stock mar­ket Thurs­day, dri­ving the Dow Jones Indus­trial aver­age up nearly 340 points and putting the Stan­dard & Poor’s 500 index on track for its best month since 1974.

Investors were relieved after Euro­pean lead­ers crafted a deal to slash Greece’s debt load and pre­vent the cri­sis there from engulf­ing larger coun­tries like Italy. The pack­age is aimed at pre­vent­ing another finan­cial dis­as­ter like the one that hap­pened in Sep­tem­ber 2008 after the col­lapse of Lehman Brothers.

But some ana­lysts cau­tioned that Europe’s prob­lems remained unsolved.

“The mar­ket keeps on think­ing that it’s put Europe’s prob­lems to bed, but it’s like putting a three-year old to bed: You might put it there but it won’t stay there,” said David Kelly, chief mar­ket strate­gist at J.P. Mor­gan Funds.

Kelly said Europe’s debt prob­lems will remain an issue until the economies of strug­gling nations like Greece and Por­tu­gal grow again.

Com­modi­ties and Trea­sury yields soared as investors took on more risk. The euro rose sharply against the dollar.

Stronger U.S. eco­nomic growth and cor­po­rate earn­ings also con­tributed to the surge. The gov­ern­ment reported that the Amer­i­can econ­omy grew at a 2.5 per­cent annual rate from July through Sep­tem­ber on stronger con­sumer spend­ing and busi­ness invest­ment. That was nearly dou­ble the 1.3 per­cent growth in the pre­vi­ous quarter.

Banks agreed to take 50 per­cent losses on the Greek bonds they hold. Europe will also strengthen a finan­cial res­cue fund to pro­tect the region’s banks and other strug­gling Euro­pean coun­tries such as Italy and Portugal.

“This seems to set aside the wor­ries that there would be a mas­sive con­ta­gion over there that would have brought every­thing down with it,” said Mark Lamkin, head of Lamkin Wealth Management.

The Dow Jones indus­trial aver­age soared 339.51 points, or 2.9 per­cent, to 12,208.55. That was its largest jump since Aug. 11, when it rose 423.

All 30 stocks in the Dow rose, led by Bank of Amer­ica Corp. with a 9.6 per­cent gain. It was the first time the Dow closed above 12,000 since Aug. 1.

Even with Thursday’s gains, the Dow remains 4.7 per­cent below the high for the year it reached April 29. The Dow has fallen every month since then due to a com­bi­na­tion of a slow­down in the U.S. econ­omy, a world­wide parts short­age after the earth­quake and tsunami in Japan, and con­cerns about the Euro­pean debt cri­sis. The Dow is now at approx­i­mately the same level it traded at on July 28.

Stocks fell for much of August in the wake of a last-minute deal to pre­vent the U.S. gov­ern­ment from default­ing on its debt.

But antic­i­pa­tions of a solu­tion to Europe’s debt prob­lems and signs that the U.S. econ­omy is not in another reces­sion have lifted stocks higher through­out October.

The Dow is up 11.9 per­cent for the month so far. With only two full days of trad­ing left in the month, the Dow could have its biggest monthly gain since Jan­u­ary 1987.

The S&P 500 rose 42.59, or 3.7 per­cent, to 1,284.59. Those gains turned the S&P pos­i­tive for the year for the first time since Aug. 3, just before the U.S. government’s debt was down­graded. The index is up 13.5 per­cent for the month, its best per­for­mance since a 16.3 per­cent gain in Octo­ber 1974.

The Nas­daq com­pos­ite leaped up 87.96, or 3.3 per­cent, to 2,738.63.

Small-company stocks rose more than the broader mar­ket. That’s a sign investors were more com­fort­able hold­ing assets per­ceived as being risky but also more likely to appre­ci­ate in a strong econ­omy. The Rus­sell 2000 index jumped 5.3 percent.

Raw mate­ri­als pro­duc­ers, banks and stocks in other indus­tries that depend on a strong econ­omy for profit growth led the way. Cop­per jumped 5.8 per­cent to $3.69 a pound and crude oil jumped 4.2 per­cent to $93.96 a barrel.

The euro rose sharply, to $1.42, as con­fi­dence in Europe’s finan­cial sys­tem grew. The euro was worth $1.39 late Wednes­day and had been as low as $1.32 on Oct. 3. Euro­pean stock indexes also soared. France’s CAC-40 rose 6.3 per­cent and Germany’s DAX jumped 6.1 percent.

Investors sold U.S. Trea­sury notes and bonds, an indi­ca­tion they were mov­ing away from safer invest­ments. The yield on the 10-year Trea­sury note, which moves in the oppo­site direc­tion of its price, rose to 2.39 per­cent from 2.21 per­cent late Wednesday.

Euro­pean lead­ers still have to final­ize the details of their lat­est plan. French Pres­i­dent Nico­las Sarkozy spoke with Chi­nese Pres­i­dent Hu Jin­tao amid hopes that coun­tries with lots of cash like China can con­tribute to the Euro­pean rescue.

Past attempts to con­tain Europe’s two-year debt cri­sis have proved insuf­fi­cient. Greece has been sur­viv­ing on res­cue loans since May 2010. In July, cred­i­tors agreed to take some losses on their Greek bonds, but that wasn’t enough to fix the problem.

Wor­ries about Europe’s debt cri­sis and a weak U.S. econ­omy dragged the S&P 500 down 19.4 per­cent between April 29 and Oct. 3. That put it on the cusp of what’s called a bear mar­ket, which is a 20 per­cent decline.

Since then, there have been a num­ber of more encour­ag­ing signs on the U.S. econ­omy. Despite the jit­ters over Europe, many large Amer­i­can com­pa­nies have been report­ing strong profit growth in the third quarter.

Dow Chem­i­cal rose 8.2 per­cent after its profit last quar­ter rose 59 per­cent on strong sales growth from Latin Amer­ica. Occi­den­tal Petro­leum Corp. jumped 9.7 per­cent after report­ing a 50 per­cent surge in income.

Cit­rix Sys­tems Inc. rose 17.3 per­cent. The tech­nol­ogy company’s rev­enue rose 20 per­cent last quar­ter, and it fore­cast growth of up to 13 per­cent for 2012. Aka­mai Tech­nolo­gies Inc., whose prod­ucts help speed the deliv­ery of online con­tent, jumped 15.4 per­cent after the com­pany reported earn­ings that beat ana­lysts’ expectations.

Avon Prod­ucts Inc. fell 18 per­cent, the most in the S&P 500, after the com­pany said the Secu­ri­ties and Exchange Com­mis­sion is inves­ti­gat­ing its con­tacts with finan­cial ana­lysts and Avon’s own probe into bribery in China and other countries.

Nine stocks rose for every one that fell on the New York Stock Exchange. Vol­ume was heavy at 6.5 bil­lion shares.

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