Rising US stocks point to global economic recovery

2009-12-12 11:01

US stocks mostly rose yesterday on signs that consumers and

businesses are feeling more confident about the US economy.

The US commerce department said retail sales rose 1.3% in November,

more than double the increase analysts had expected and better than the 1.1%

rise in October.

The report boosted hopes that consumers were starting to feel more

comfortable opening their wallets after months of building up their savings.

A recovery in consumer spending, a major component of US economic

activity, is seen as one of the key elements to sustained growth.

A separate report showing an increase in consumer confidence

signalled that spending could continue to rise. The preliminary

Reuters/University of Michigan consumer sentiment index increased more than

expected in December.

In another welcome sign, the Commerce Department reported a 0.2%

gain in business inventories in October, breaking a 13-month streak of declines.

That’s a signal that businesses expect consumers to step up their

purchases.

Outside the US, news that China’s exports improved last month

provided more evidence that the global economy is recovering.

Chinese exports

posted their smallest drop in exports in a year last month, just 1.2%, following

a 13.8%plunge in October. Retail sales and industrial production grew.

Hopes of an economic rebound have driven stocks higher for nine

months but in the past month the pace of gains have slowed as investors look to

lock in the year’s double-digit gains as they face questions about whether the

economy’s recovery will continue.

Stephen Wood, chief market strategist at Russell Investments, said

the day’s reports help confirm that the economy is on the right track.

“We’re going from the first global recession in 70 years to a

tepid, but very real global growth story,” he said.

The Dow Jones industrial average rose 65.67, or 0.6 %, to

10,471.50. The Standard & Poor’s 500 index gained 4.06, or 0.4%, to

1,106.41, while the Nasdaq composite index slipped 0.55, or less than 0.1

percent, to 2,190.31.

Stocks and the dollar oscillated during the week as investors tried

to determine where the economy, and subsequently interest rates, are headed.

After a stronger dollar sent the Dow down 104 points on Tuesday, stocks

rebounded in the final three days of the week.

The Dow rose 0.8 percent for the week, its second straight weekly

gain. The S&P 500 index rose for a third straight week, edging up less than

0.1 percent. The Nasdaq slipped 0.2 percent for the week.

Friday’s gains in stocks came even as the dollar rose.

The ICE Futures US dollar index, which measures the dollar against

other currencies, rose 0.7 percent.

For months, stocks and commodities have moved in the opposite

direction of the dollar. The dollar has been falling for much of this year as

low interest rates make other assets like stocks and commodities more

attractive. A weaker dollar makes commodities cheaper for foreign buyers and

helps boost the profits at companies that do business overseas.

Gold fell $6.30 to $1,119.80 an ounce. Oil slumped for an eighth

day, sliding 67 cents to $69.87 a barrel on the New York Mercantile

Exchange.

Treasury prices mostly fell Friday after the encouraging economic

reports weakened demand for safe-haven investments. That pushed yields higher.

The yield on the benchmark 10-year Treasury note rose to 3.55% from 3.50% late

Thursday.

A steep drop in the number of employers who cut jobs last month and

other signs of improvement in the economy have brought expectations that the

Federal Reserve will raise interest rates sooner than later. That would boost

the dollar and potentially hurt stocks as investors look for better returns

elsewhere.

Next week, investors will be looking to the policy statement that

follows a two-day meeting of the Fed’s interest rate committee for clues on the

direction of interest rates. Reports are also due on housing and industrial

production, and companies including Best Buy Co. and FedEx Corp. are scheduled

to post quarterly earnings.

Two stocks rose for every one that fell on the New York Stock

Exchange, where volume totalled 1 billion shares versus 1.1 billion

Thursday.

The Russell 2000 index of smaller companies rose 4.99, or 0.8

percent, to 600.37.

 

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