Positive news on European debt crisis lifts stock market

| Tuesday, June 28, 2011

Signs that a widespread European debt crisis could be averted helped send stocks up on Monday.

French banks agreed to accept slower repayment of Greece's debt, giving Greece more time to meet its other financial obligations. French banks hold $21.3 billion in Greek government debt.

Greek lawmakers began to debate more budget-cutting measures. Greece's parliament needs to pass the new austerity plan this week before the country can receive a $17 billion installment from a rescue package arranged last year.

Washington, meanwhile, said that spending by consumers decreased in May, after adjusting for inflation. April's figures also were revised downward, revealing the first decline since January 2010. Consumer spending accounts for 70 percent of economic activity.

Gas prices nearing $4 per gallon in late April and early May curtailed spending on retail goods such as televisions and clothes. Since then, gas prices have fallen to a national average of $3.57 per gallon. Oil prices have declined steeply during the past few weeks, which eventually should translate into even lower pump prices. Analysts say lower gas prices could help boost consumer spending in other areas in the coming months.

The Dow Jones industrial average rose 108.98 points, or 0.9 percent, to close at 12,043.56. The Standard & Poor's 500 index rose 11.65, or 0.9 percent, to 1,280.10. The Nasdaq composite index rose 35.39, or 1.3 percent, to 2,688.28.

Analysts said the rally was stronger than the economic news would suggest in part because many traders invest when indices hit certain pre-determined price levels.

In this case, the key number is 1,257 -- the S&P's break-even figure for the year, said Todd Salamone, director of research at Schaeffer's Investment Research. The S&P approached that level in March and again earlier this month. Both times, the market rallied as so-called technical traders poured into the market.

The Monday-morning rally was driven by "a combination of trading on that (break-even) level and a catalyst, the situation in Europe," Salamone said. "Whether we sustain it is another question."

Stocks rose broadly. All 10 industry groups in the S&P were higher, with financials, information technology and retail stocks showing the strongest gains.

Amazon.com Inc. rose 4.5 percent to $201.25, making it the top-performing company in the S&P 500. Morgan Stanley analysts said the online retailer should benefit from expanding international sales in places like Japan and Germany, where densely populated cities leave little room for large low-price retail stores.

Shares of electronics maker Molex Inc. fell 4 percent, the most in the S&P, after analysts with Ticonderoga Securities downgraded the stock to "sell" from "neutral." They said the slow economy has hurt demand for tech gadgets like the smart phones that Molex manufactures.

Subscribe today! Click here for our subscription offers.


Show commenting policy