By Sarah Jones
Dec. 2 (Bloomberg) -- U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will recover from the worst tumble since October, on speculation central banks will step up efforts to spur growth as economies contract.
Citigroup Inc. rallied 6 percent after Federal Reserve Chairman Ben S. Bernanke said he may use less conventional policies, such as buying Treasury securities, to revive the economy. Exxon Mobil Corp. advanced 1.6 percent as the S&P 500 Energy Index traded near the cheapest level on record.
“The Fed has been proactive,” said Felix Wintle, head of U.S. equities at Neptune Asset Management in London, where he helps oversee about $4.1 billion. “That is going to help the U.S. to be the first major economy to recover from the global recession. The risk is to the upside and it is for that reason that there are plenty of buyers in the markets at the moment.”
Futures on the S&P 500 expiring in December added 13.6, or 1.7 percent, to 829.4 at 8:22 a.m. in New York. The benchmark for U.S. equities yesterday tumbled 8.9 percent as manufacturing contracted at the fastest pace in 26 years.
Dow Jones Industrial Average futures today gained 109, or 1.3 percent, to 8,248, while Nasdaq-100 Index futures climbed 13.75, or 1.3 percent, to 1,108.25.
Europe, Asia
Europe’s Dow Jones Stoxx 600 Index advanced 1.1 percent, reversing an earlier drop of 2.3 percent. Barclays Plc and Rio Tinto Group limited gains, falling more than 4 percent on concern the deepening recession will crimp earnings.
The MSCI Asia Pacific Index decreased 4.2 percent as China Petroleum & Chemical Corp. dropped 6.2 percent.
U.S. stock swings will be more than triple the average in seven months as investors contend with a global recession and the worst returns since the 1930s, volatility futures show.
May contracts on the Chicago Board Options Exchange Volatility Index, or VIX, closed yesterday at 43.80, while futures expiring before then trade at higher levels, showing investors expect the S&P 500 to rise or fall at least 2.8 percent a day through June 17, according to data compiled by Bloomberg. The last time the benchmark index for U.S. stocks moved that much during the same amount of time was 1932.
Citigroup advanced 39 cents to $6.84, recovering about a fifth of yesterday’s 22 percent tumble. Banks, insurers and investment firms in the S&P 500 slumped 17 percent as a group yesterday, the steepest tumble for the S&P 500 Financials Index since the gauge was created in 1989.
Energy Shares
Exxon climbed $1.17 to $75.48, while ConocoPhillips, the second-largest U.S. refiner, added 1.8 percent to $48.90.
The S&P 500 Energy Index, which has slumped 40 percent this year, currently trades at 6.29 times the reported earnings of its companies. That compares with last week’s low of 5.63, the cheapest since Bloomberg began tracking the data in 1995. The entire S&P 500 is valued at 17.66 times earnings.
Crude oil tumbled to the lowest in three years in New York on signs that the economy in the U.S., the world’s largest energy consumer, is in a more severe economic slowdown than expected. The U.S. first entered a recession in December 2007, the panel of economists that dates American business cycles said yesterday.
The Fed is scheduled to announce its decision on borrowing costs Dec. 16. Futures traders see a 64 percent chance the central bank will cut the benchmark rate by 50 basis points to 0.5 percent. There’s also a 6.5 percent probability rates will be reduced to zero percent next month, according to Fed fund futures.
Bernanke yesterday said he has “obviously limited” room to lower rates further and may use less conventional policies. Even so, reducing borrowing costs is “certainly feasible,” he said.
‘Most Proactive’
Policy makers may decide at their meeting this month on the details of carrying out such a shift, which might resemble the “quantitative easing” strategy the Bank of Japan pursued in 2001-2006 after driving interest rates close to zero. The Fed chief’s readiness to rely more on adding reserves to the banking system prompted JPMorgan Chase & Co. economist Michael Feroli to refer to him as “Bernanke-san” in a note yesterday.
“The Federal Reserve is currently the most proactive central bank,” Andrew Garthwaite, a London-based equity strategist at Credit Suisse Group AG, wrote in a note to investors. “Fiscal policy is eased quicker and corporates cut costs quicker than in Europe and Japan.”
Australia’s central bank cut its benchmark interest rate 1 percentage point today, extending the biggest round of reductions since the 1991 recession. Investors are speculating the Bank of England will lower borrowing costs this week.
The S&P 500 posted its biggest weekly rally in 34 years last week after the government agreed to protect Citigroup from further losses. The measure is still down 44 percent this year as credit losses and writedowns at financial firms approach $1 trillion and more economists forecast that the U.S. recession will be one of the most severe in the postwar era.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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