US stocks climb on bank reform

US stocks extended their rally into a third week today as investors sent bank stocks higher following new global regulatory requirements and China’s economy continued its robust growth.

A round of corporate dealmaking also gave a lift to stocks. Hewlett-Packard said it will purchase security software provider ArcSight. Dollar Thrifty Automotive Group said it accepted Hertz Global Holding‘s acquisition offer.

Acquisitions are often a sign that companies are confident the economy is going to expand soon.

The Dow Jones industrial average rose about 56 points in afternoon trading after paring early morning gains. If the Dow holds onto its gains, it would be the eighth time in nine days that the index has risen.

“The package of catalysts is a perfect backdrop for a market trying to confirm global economic growth,” said Quincy Krosby, a market strategist at Prudential Financial. Dealmaking and the expansion in China further reduced worries about the economy falling back into recession, Mr Krosby said.

Stocks pulled off their highs this afternoon as investors pulled money out of retail stocks ahead of the government’s monthly retail sales report due out tomorrow.

Global regulators agreed to reforms that could help avoid another credit crisis that plagued financial markets worldwide in 2008 and early 2009. Banks will gradually have to increase their reserves to protect against potential losses.

“The agreement itself was a little lighter than expected,” said Mitch Schlesinger, managing director at FBB Capital. But because reserve requirements will be rolled out slowly and not be quite as strong as expected, it reduces short-term worries that banks would have to further cut back on lending and raise new cash quickly to meet new standards, Schlesinger said.

The new regulations have added to confidence in Europe’s banks, which have been slower than their US counterparts to bolster reserves. European markets rose sharply Monday. Confidence in European banks was shaken early last week as investors questioned whether they could absorb potential losses on risky government debt.

Fresh signs of strong economic expansion in China also added to market strength Monday. New economic reports showed growth in the world’s second-largest economy continues to accelerate at a time when economists were expecting it to slow. Strong growth in China is considered vital to a global recovery because if demand remains high there, it will offset sluggish growth in the US where economic expansion is not as strong.

The Dow rose 56.46, or 0.5 %, to 10,519.30 in afternoon trading.

The Standard & Poor’s 500 index rose 10.02, or 0.9 %, to 1,119.57, while the Nasdaq composite index rose 35.46, or 1.6 %, to 2,277.94.

About four stocks rose for every one that fell on the New York Stock Exchange, where volume came to 564.1 million shares. Trading volume picked up as traders return from summer vacations and recent holidays. Volume in recent weeks had been extremely light, even by summer standards.

JPMorgan Chase & Co. and Bank of America Corp. were among the biggest US gainers in the financial sector. JPMorgan Chase rose 1.45, or 3.7 %, to $41.21, while Bank of America rose 39 cents, or 2.8 %, to $13.94.

Hewlett-Packard, which has been buying up smaller companies in recent months, will pay $1.5bn, or $43.50 per share, in cash for ArcSight. ArcSight jumped $8.75, or 24.9 %, to $43.85, while Hewlett-Packard fell 5 cents to $38.16.

Hertz agreed to pay $1.43bn, or $50 per share, for Dollar Thrifty, beating out competitor Avis Budget Group. in a bidding war to acquire the rival rental car company. Dollar Thrifty rose $2.48, or 5.2 %, to $50.49, while Hertz rose 71 cents, or 7.1 %, to $10.76.

Genzyme Corp said it will sell its genetic testing business to Laboratory Corp. of America Holdings for $925m. The sale comes after Genzyme rebuffed an $18.5bn takeover bid from French pharmaceutical company Sanofi-Aventis. Laboratory Corp. of America fell 3.27, or 4.3 %, to $73.38. Genzyme fell 43 cents to $70.36.

Andrew Neale, a portfolio manager at Fogel Neale Partners said the acquisitions activity is “crucial for investors” because when companies are confident and investing money, it adds to investor confidence.

Oil prices continued to rise as a leak in a pipeline that supplies oil to refineries in the Midwest remains closed. Benchmark crude rose 75 cents to $77.20 a barrel on the New York Mercantile Exchange.

Treasury prices rose modestly, indicating not all investors were confident in the latest signs of growth. The yield on the 10-year Treasury note, which moves opposite its price, dipped to 2.74 % from 2.79 late Friday. Its yield is often used to help set interest rates on mortgages and other consumer loans.

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