Wall St hits 3-month highs on hopes for euro-zone aid

MARKETS-USA-STOCKS:Wall St hits 3-month highs on hopes for euro-zone aid

new York  August 6, 2012, 23:07 IST

new York  08 06, 2012, 23:10 IST

 

U.S. stocks extended last week's rally on Monday, hitting fresh three-month highs, as borrowing costs fell in Spain and Italy in expectation of more European Central Bank assistance for the troubled euro zone.

The S&P 500 reached its highest point since early May, near the 1,400 level. A break above that could boost investor confidence.

Sentiment in Spanish and Italian debt markets - at the forefront of the three-year debt crisis - improved, as two-year Spanish yields fell to 3.42 percent on Monday, less than half of a late July high of over 7 percent.

European Central Bank President Mario Draghi has said the ECB plans to buy short-dated bonds to lower borrowing costs to help Europe, which has been mired in a debt disaster. European shares closed at four-month highs.

"If you listen to comments by Draghi, what he's indicating is that we're here to help, but you need to raise your hand, and by doing that, you're also committing yourself to austerity in order to receive these monies," said Jonathan Golub, chief U.S. equity strategist at UBS.

But Golub said central bank action alone was not a panacea, and that his year-end target for the S&P 500 was 1,375, or around 2 percent less than Monday's levels.

"My belief is that ultimately you need to do more than simply supply liquidity to fix these issues. Look at Spain - the economy is contracting, you have high unemployment, and while this eliminates the pressure from high borrowing rates, it doesn't solve those problems."

Meanwhile, a group of investors will rescue embattled market maker Knight Capital Group Inc in a $400 million deal that keeps the company in business, Knight said on Monday. But it comes at a huge cost to investors. Knight shares fell 23 percent to $3.12.

Wall Street rallied on Friday with the S&P 500 marking its fourth straight week of gains on a strong U.S. jobs report and renewed hope that European authorities would act to contain the euro zone's debt crisis through ECB purchases of Italian and Spanish bonds.

The Dow Jones industrial average rose 82.38 points, or 0.63 percent, to 13,178.55. The S&P 500 Index gained 8.12 points, or 0.58 percent, to 1,399.11. The Nasdaq Composite added 31.37 points, or 1.06 percent, to 2,999.27.

Best Buy shares jumped 11 percent to $19.58 after Richard Schulze, the founder and former chairman, offered to buy the shares he does not already own in the electronics retailer for $24 to $26 each.

Cognizant Technology Solutions Corp shares rose 12 percent to $64.80 after the information technology services provider raised its full-year adjusted profit forecast.

Of the 411 companies in the S&P 500 that have reported second-quarter earnings through Monday morning, 67.4 percent have reported earnings above analysts' expectations, near the four-quarter average of 68 percent, according to Thomson Reuters data.