By Adria Cimino
Dec. 22 (Bloomberg) -- European stocks rose, sending the Dow Jones Stoxx 600 Index to a five-week high, before U.S. economic reports that may show the recovery is strengthening. Asian stocks and U.S. futures also climbed.
Barratt Developments Plc and Taylor Wimpey Plc led gains in U.K. homebuilders, adding at least 3.7 percent, after Goldman Sachs Group Inc. recommended buying the stocks. Julius Baer Group Ltd. rallied 3.8 percent as Goldman Sachs initiated coverage with a “conviction buy” recommendation. Sony Corp. led Asian exporters higher after the Bank of Japan said it will “persistently” keep interest rates at close to zero, causing the yen to weaken against the dollar.
The Stoxx 600 climbed 0.5 percent to 250.89 at 8:50 a.m. in London, as all 19 industry groups rose. The index is heading for a 27 percent increase this year, its steepest annual advance in a decade. Equities have been buoyed by record low interest rates in the U.S. and Europe and by governments worldwide that have committed about $12 trillion to revive the economy.
“Since we haven’t had bad news about the economy, the market remains confident,” said Guillaume Duchesne, Luxembourg- based equity strategist at Fortis Private Banking, which oversees about $117 billion. “The market is focusing on the idea that global growth will be good. Companies linked to the economic cycle can benefit from this. All is in place for the market to rise a bit more” if news remains positive.
Equity Strategists
European equity strategists say earnings growth can push stocks 11 percent higher in 2010 following this year’s rally. Goldman Sachs and Bank of America Corp., which underestimated the strength of this year’s gains, predict shares in the region may climb more than 20 percent over the next 12 months. Morgan Stanley is the only brokerage among 16 surveyed by Bloomberg to estimate a retreat by year-end, saying the withdrawal of government stimulus will weigh on equities.
Profits for companies in the Stoxx 600 are expected to climb 29 percent next year, according to data compiled by Bloomberg. That compares with a forecast for a 7.4 percent increase in 2009 profits.
U.S. stocks rose yesterday, recouping last week’s loss, as analysts recommended companies from Alcoa Inc. to Intel Corp. and health-care shares surged after Congress delayed a new tax in the proposed industry overhaul. Standard & Poor’s 500 Index futures added 0.3 percent today.
Sales of existing U.S. homes probably rose in November to the highest level in more than two years, a sign housing is gaining strength along with the broader economy entering 2010, economists said before a report due at 10:00 a.m. in Washington. Purchases climbed 2.5 percent to a 6.25 million annual rate, according to the median forecast in a Bloomberg News survey.
U.K. Homebuilders
The U.S. economy grew at a 2.8 percent annual rate in the third quarter, economists forecast the Commerce Department’s final reading on gross domestic product to show at 8:30 a.m. today in Washington.
Barratt surged 4.4 percent to 119 pence. Taylor Wimpey climbed 3.7 percent to 35.62 pence. Both stocks were raised to “buy” from “neutral” at Goldman Sachs. “We believe the valuation of the U.K. housebuilders is now more reasonable, although returns may remain depressed for at least two years,” the brokerage wrote in a report on the industry.
The U.K. housing market recovery will fade in 2010 as more homes become available to buy and officials start to exit emergency stimulus measures, the Royal Institution of Chartered Surveyors said today. Prices will increase in a range of 1 percent to 2 percent after rising about 3.5 percent this year, RICS said.
VStoxx Declines
Julius Baer jumped 3.8 percent to 35.42 Swiss francs. The stock was rated “conviction buy” in initiated coverage at Goldman Sachs, which said in a report the company “offers the most attractive blend of growth, business mix, capital optionality and valuation support.”
The VStoxx Index, which gauges the cost of using options to protect against declines in the Euro Stoxx 50, fell 2.4 percent to 22.81, the lowest intraday level since Sept. 4, 2008, while the Euro Stoxx 50 climbed 0.5 percent. The options measure has dropped 48 percent this year, poised for the steepest annual decline since 2003.
The MSCI Asia Pacific Index advanced 1.1 percent today. Sony, which gets 23 percent of its sales from the U.S., rose 2.7 percent in Tokyo. The yen depreciated to as much as 91.48 today from 90.29 at yesterday’s close of stock trading in Tokyo, after Bank of Japan Governor Masaaki Shirakawa told TV Tokyo last night that the central bank is prepared to “act swiftly and decisively” to prevent deflation from deepening. A weaker yen boosts the value of Japanese companies’ overseas sales when converted into their home currency.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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