Stocks Rise, Treasuries Fall on Home Sales, Jobs; Oil Advances

Bloomberg — September 2, 2010 — U.S. stocks rose, adding to the biggest rally in the Standard & Poor’s 500 Index since July, and Treasuries fell as an unexpected jump in home sales and a drop in jobless claims tempered concern the economic rebound is weakening. Oil advanced for a second day.

The S&P 500 climbed 0.9 percent to 1,090.10 at 4 p.m. in New York, bringing its two-day gain to 3.9 percent, the most since July 8. The 10-year Treasury note’s yield increased 5 basis points to 2.62 percent. Oil added 1.5 percent after a platform in the Gulf of Mexico was struck by an explosion. Nickel rallied 2.9 percent to lead metals higher. The Swiss franc approached $1 for the first time this year.

The 5.2 percent growth in pending home sales and 6,000 decrease in initial jobless claims follow reports yesterday showing better-than-estimated expansion in U.S. and Chinese manufacturing, which triggered a 3 percent surge in the S&P 500. Economists on average forecast that government data tomorrow will show private employers added 40,000 jobs in August, while a reduction in census workers dragged total payrolls down by 100,000 and pushed the unemployment rate up to 9.6 percent.

“Better housing sales, that’s encouraged people,” said John Carey, Boston-based money-manager at Pioneer Investment Management, which oversees about $230 billion. “The economy is still growing, if slowly, and it would be nice to see some progress on the unemployment.”

August Slide Trimmed

The S&P 500’s rally yesterday wiped out most of its 4.7 percent tumble in August, which was triggered by concern the economic recovery is slowing. The index remains 10 percent below its high for the year in April.

Consumer and industrial companies led gains in nine of 10 groups in the S&P 500 today, with Home Depot Inc. and Honeywell Inc. climbing more than 2.5 percent.

Today’s month-over-month increase in contracts to purchase previously owned homes defied economists’ average forecast for a drop of 1 percent, while the 472,000 initial jobless claims trailed the median estimate of 475,000 in a Bloomberg survey.

“With initial claims in the range of what was expected, given the generally more positive way investors have greeted economic statistics, this will do no harm,” said Bruce McCain, who oversees $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “The more important number is going to be tomorrow: the payrolls number.”

Treasuries, Default Swaps

The 30-year U.S. bond yield climbed 6 basis points to 3.71 percent. The U.S. Treasury Department announced it will auction $13 billion in 30-year bonds on Sept. 9, a decrease of $3 billion from the last offering.

A benchmark indicator of corporate credit risk in the U.S. dropped to the lowest in more than two weeks as the unexpected jump in pending home sales and decrease in jobless claims tempered concern the recovery is weakening. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 2.5 basis points to a mid- price of 106.56 basis points. The measure has lost 7.9 basis points in the last two days, the most since July 8.

The MSCI Asia Pacific Index climbed 1.1 percent, and the MSCI Emerging Market Index advanced 0.6 percent.

The Swiss franc gained as much as 0.6 percent to 99 U.S. cents after Switzerland’s economy grew 0.9 percent from the first quarter, more than the 0.8 percent median of 18 estimates in a Bloomberg survey. The U.S. currency weakened against 14 of 16 major peers. The pound slid 0.4 percent against the dollar as reports showed an index of U.K. construction dropped more than forecast in August, while house prices fell the most in six months.

Crude Rises

Crude oil for October delivery rose 1.5 percent to $75.02 a barrel in New York, reversing earlier declines. Oil rebounded after the U.S. Coast Guard reported an explosion on a rig owned by Mariner Energy Inc., bolstering concern that regulations will cut output in the region. Mariner’s shares fell as much as 16 percent.

Investors are placing more bets on commodities than at any time since before the collapse of Lehman Brothers Holdings Inc., a sign that gold and oil will outperform stocks, said William O’Neill at Logic Advisors.

The open interest, or contracts yet to be closed, liquidated or delivered, for the 19 commodities tracked by the Reuters/Jefferies CRB Index have jumped 11 percent this year to the highest level since July 7, 2008. The CRB, up 7.8 percent from a year ago as of yesterday, may rise another 6.1 percent to 285 in 12 months, outperforming “moderate” returns on the S&P 500, said O’Neill, a Logic Advisors partner.

‘Disorderly Market’

Gold climbed for the third day this week, rising 0.5 percent to $1,254.20 an ounce in New York, on speculation that investors will seek an alternative to stocks. The European Union plans to limit so-called naked-short sales of shares and government debt which it says can cause a “disorderly market and possible systemic risks.” That may encourage investors to move out of higher-risk assets such as equities, said Daniel Brebner, an analyst at Deutsche Bank AG.

Nickel for delivery in three months climbed 2.9 percent on the London Metal Exchange and lead rallied 1.9 percent. Production of nickel, used to make stainless steel, will lag behind demand from next year through at least 2014, according to Standard Chartered Plc.