US stocks rise on back of euro deal
The broad rally of 2% gave the S&P 500 its best day in three weeks and helped the benchmark index trim its quarterly loss to about 4%. It is the first down quarter for the S&P 500 since the third quarter of last year after inconclusive Greek elections and fears about the solvency of Spanish banks created turbulence in financial markets around the world.
Crucially, eurozone leaders agreed countries would be able to recapitalise banks directly without increasing a country’s budget deficit, and without preferential seniority status. Such a move avoids the trap that markets fell into when policy makers bailed out Spanish banks to the tune of €98.75bn, but ended up further extending the indebted Spanish state and shunting existing bondholders down the food chain.
“The market is loving it,” said Ken Polcari, a floor trader at ICAP Equities in New York. “I think part of that is relief that the leaders seem to be coming together, but I still think there is a lot of conditionality and a lot of ‘devil’s in the details’.”
Polcari said that part of the bounce was being driven by traders reversing bets that the market would fall. Policymakers also agreed on a pan-bloc banking union and said they wouldn’t force countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.
Investors also cited end-of-quarter portfolio adjustments, including reallocation to bonds from stocks after bonds outperformed stocks by a wide margin this month.
The Dow Jones industrial average gained 208.85 points, or 1.66% to 12,811.11. The Standard & Poor’s 500 Index rose 24.51 points, or 1.84%, to 1,353.55. The Nasdaq Composite Index added 67.86 points, or 2.38%, to 2,917.35.
Details of the euro accord remain to be worked out. But Italian and Spanish borrowing costs fell, though they remained not far from recent highs.
