Global Stocks, Oil Gain as Treasuries, VIX Fall; Banks Advance

By Rita Nazareth

April 9 (Bloomberg) -- Stocks rallied around the world, driving the benchmark index of investor anxiety to a six-month low, as better-than-estimated earnings at Wells Fargo & Co. and speculation American banks will pass government stress tests boosted confidence in the financial system. Oil gained, Treasuries fell and the dollar rose against the euro and yen.

Wells Fargo, the second-largest U.S. lender, jumped 20 percent. Bank of America Corp. and JPMorgan Chase & Co. climbed at least 12 percent on a report that all 19 banks examined by the government will pass the review meant to determine their viability should the recession deepen. Barclays Plc surged 12 percent in London after agreeing to sell its iShares unit. The VIX, as Wall Street’s stock market “fear gauge” is known, fell to 37.62, the best level since September.

The Standard & Poor’s 500 Index added 2.5 percent to 845.99 at 12:14 p.m. in New York, poised to advance for a fifth straight week, the longest stretch since the bear market started in October 2007. The Dow Jones Industrial Average rose 173.55, or 2.2 percent, to 8,010.66. Benchmark stock gauges in Germany and Hong Kong added 3 percent as the MSCI World Index of 23 developed nations increased 2.2 percent, the most in a week.

“The worst is behind us,” said Alan Gayle, a Richmond, Virginia-based senior investment strategist at RidgeWorth Capital Management, which oversees $60 billion. “We’re working our way through the credit crisis and that’s why the market is cheering.”

VIX Under 40

Stocks also rallied after the government reported that initial jobless claims in the U.S. dropped more than economists estimated last week and the trade deficit unexpectedly shrank 28 percent, the most since 1996, as imports decreased.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell to the lowest since Sept. 26, dropping 3.2 percent to 37.62. The index measures the cost of using options as insurance against declines in the S&P 500.

Before Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history in September, the VIX surpassed 40 during four prior periods in its 19-year history and never stayed above that level for more than 10 days. It’s closed below 40 only eight times since Sept. 29.

The S&P 500 has climbed 25 percent since reaching the lowest level in a dozen years on March 9 as banks from Citigroup Inc. to JPMorgan said they made money in the first two months of the year and Treasury Secretary Timothy Geithner unveiled plans to rid financial firms of toxic assets. The index is still down 6.4 percent in 2009 after tumbling 38 percent last year, its worst annual return since the Great Depression.

Wachovia Beats

Wells Fargo jumped $2.95 to $17.84. The second-biggest U.S. home lender reported a record first-quarter profit that beat the most optimistic Wall Street estimates, sparking speculation that the industry’s slump has ended.

Net income rose about 50 percent from $2 billion a year earlier. Per-share profit equaled about 55 cents, more than double the average estimate of analysts surveyed by Bloomberg. The acquisition of Wachovia Corp., whose overdue home loans helped cut Wells Fargo’s stock price in half this year, is exceeding expectations, the statement said.

“Earnings expectations are so low, there’s wide open potential for pleasant surprises,” said Bruce Bittles, the Nashville-based chief investment strategist at Robert W. Baird & Co., which oversees $16 billion. “We see stocks moving higher into late summer.”

Bank of America gained 19 percent to $8.41 and Citigroup climbed 8.5 percent to $2.93. JP Morgan added 12 percent to $30.77. Fifth Third Bancorp surged 21 percent to $3.20.

The S&P 500 Financials Index, a gauge of 80 banks, insurers and investment firms, climbed 7.8 percent to its highest level in two months.

More Capital?

Some of the largest lenders may still need additional capital infusions from investors or taxpayers, the New York Times said, citing unidentified officials involved in the research. Regulators may use the findings of the examinations, likely to be completed this month, to push some companies to sell distressed assets, according to the report.

Federal Reserve officials are conducting an internal review of bank supervision aimed at improving regulators’ response to stress in the financial system, according to people familiar with the process. The evaluation focuses on speeding information flows and clearing up lines of communication for bank examiners who now report to both regional Fed bank officers and the Board of Governors in Washington.

Europe’s Dow Jones Stoxx 600 Index increased 2.2 percent as the Bank of England left its key interest rate at a record low of 0.5 percent. The MSCI Asia Pacific Index rallied 3.2 percent.

Treasuries, Oil, Copper

Treasury 10-year notes declined for the first time in three days, sending yields up 0.04 percentage point to 2.89 percent. Crude oil rallied 3.7 percent to $51.19 a barrel as copper and aluminum also gained.

Barclays shares jumped 12 percent to 177.5 pence after agreeing to sell iShares, its exchange-traded funds unit, to CVC Capital Partners Ltd. for 3 billion pounds ($4.4 billion).

Textron Inc. soared the most in 28 years on takeover speculation, jumping 52 percent to $13.87. Kuwait’s Al-Watan newspaper reported a United Arab Emirates consortium is preparing to buy the maker of Cessna aircraft and Bell helicopters for $21 a share.

General Motors Corp. rose 3.6 percent to $2. The biggest foreign automaker in China said it expects to double annual sales in the country to over 2 million vehicles over the next five years. China’s passenger car sales rose 10 percent in March from a year earlier after tax cuts and government subsidies boosted demand, according to the China Association of Automobile Manufacturers.

Macs, iPhones

Apple Inc. rose 2.5 percent to $119.21 after Credit Suisse Group AG raised its fiscal second-quarter earnings estimate, citing higher-than-projected demand for both Macintosh computers and iPhones.

Robert Doll, global chief investment officer at BlackRock Inc., told financial news network CNBC that he is advising investors to shift money from safer assets such as U.S. Treasuries into equities. He recommended energy, technology and health-care companies.

“The worst of the recession is in the rear-view mirror,” Doll said.

Profits at S&P 500 companies probably fell 38 percent on average in the first quarter, according to analysts’ estimates compiled by Bloomberg. The stretch of seven straight declines in quarterly earnings is the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.

Oil, Wal-Mart

Exxon Mobil Corp. added 1.3 percent to $69.87, while ConocoPhillips increased 1.2 percent to $40.03. Crude oil rose for a second day after a government report showed a smaller gain in U.S. inventories than the industry indicated a day earlier.

Wal-Mart Stores Inc. fell 4.1 percent and Costco Wholesale Corp. lost 2.1 percent, leading consumer staples stocks to the biggest decline in the S&P 500 among 10 industries.

Wal-Mart, the world’s largest retailer, reported comparable-store sales in March that rose less than some analysts estimated. Costco, the largest U.S. warehouse club, reported its weakest monthly sales performance since November.

Abercrombie & Fitch Co. fell 9.9 percent to $23.13, the biggest decline in the S&P 500. The U.S. teen-apparel retailer reported a 34 percent drop in March same store sales.

The highest U.S. unemployment since 1983 has forced consumers to restrain spending. The number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th straight week, although the tally of 654,000 was less 6,000 than economists’ average estimate, and the total collecting benefits increased to a record in a sign that the labor market remains weak.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.