Dow Jumps Most Since ’09 as Central Banks Act

By Rita Nazareth - Dec 1, 2011 5:27 AM GMT+0700

U.S. stocks advanced, driving the Dow Jones Industrial Average up the most since March 2009, after six central banks took action on Europe’s debt crisis by making it cheaper for lenders to borrow in dollars.

Financial shares rallied 6.6 percent, the biggest gain in the Standard & Poor’s 500 Index among 10 groups. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) surged at least 7.3 percent. Caterpillar Inc. (CAT) increased 8.1 percent and U.S. Steel Corp. climbed 15 percent after China lowered banks’ reserve requirements, bolstering optimism about economic growth. The Dow Jones Transportation Average jumped 4.8 percent.

The S&P 500 rose 4.3 percent to 1,246.96 at 4 p.m. New York time. The benchmark gauge rallied 7.6 percent in three days, the most since March 2009. The Dow added 490.05 points, or 4.2 percent, to 12,045.68. About 10 billion shares changed hands on U.S. exchanges, or 25 percent above the three-month average.

“They have put some more lubricant in the engine,” James McDonald, chief investment strategist at Northern Trust Corp. in Chicago, said in a telephone interview, referring to the global central bank action. His firm manages about $644 billion. “Stocks have been under considerable pressure over the fears that policy makers were not going to act. While this specific action isn’t a final solution, it does indicate their willingness to prevent significant financial dislocation.”

Today’s rally trimmed the monthly drop in the S&P 500 to 0.5 percent. Financial shares had the biggest decline (SPXL1) within 10 groups in November amid concern that Europe’s debt crisis would hamper global growth. The benchmark measure jumped 11 percent in October, the most since 1991, snapping five months of losses.

First Since 2008

American stocks joined a global rally. The central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed to cut the cost of providing dollar funding via swap arrangements, the Federal Reserve said, and agreed to make other currencies available as needed. China cut the amount of cash that banks must set aside as reserves for the first time since 2008.

In the U.S., companies boosted payrolls in November by the most this year and U.S. businesses expanded at the fastest pace in seven months. Another report showed the biggest gain in home- purchase contract signings in a year. The Fed said the economy expanded at a “moderate” pace in 11 of its 12 districts, led by gains in manufacturing and consumer spending, according to its Beige Book survey released today covering October and the first half of November.

‘Avoid a Recession’

“The economic backdrop continues to improve,” Burt White, who helps oversee about $315 billion as chief investment officer at LPL Financial Corp. in Boston, said in a telephone interview. “Then, you mix in the policy action across the globe to ease liquidity concerns. I don’t think there’s any doubt that the U.S. economy is going to avoid a recession.”

All 10 groups in the S&P 500 rose as gauges of financial, commodity and industrial shares added at least 5.1 percent. The Morgan Stanley Cyclical Index rallied 5.9 percent as concern eased about global economic growth. A measure of homebuilders (S5FINL) in S&P indexes increased 6.5 percent.

The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, tumbled 9.3 percent to 27.80, extending its three-day decline to 19 percent.

“You want to buy when things don’t look that great,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $209.1 billion. “I’m not predicting that the volatility is over, but I think they are making progress.”

Banks Rally

The KBW Bank Index (BKX), which had slumped 32 percent this year through yesterday, gained 7.2 percent. Financial shares tumbled after the close of regular trading yesterday as S&P cut credit ratings for lenders including Bank of America and Citigroup Inc. (C) Today, JPMorgan added 8.4 percent, the most in the Dow, to $30.97. Bank of America gained 7.3 percent to $5.44. Citigroup rose 8.9 percent to $27.48.

Caterpillar, the world’s largest construction and mining- equipment maker, rose 8.1 percent to $97.88. U.S. Steel surged 15 percent to $27.30. PulteGroup Inc. (PHM) jumped 8 percent to $6.11, pacing gains in homebuilders.

American Airlines parent AMR Corp. (AMR) increased 23 percent to 32 cents. The shares tumbled 84 percent yesterday after the company announced a bankruptcy filing.

Cisco Systems Inc. (CSCO) gained 5.4 percent to $18.64. Deutsche Bank AG recommended buying the world’s biggest maker of networking equipment, saying checks suggest datacenter information technology rollouts remain “robust.”

‘At All Costs’

Netflix Inc. (NFLX) slumped 4.5 percent to $64.53. The video- streaming and DVD subscription service was cut to “underperform” from “neutral” at Wedbush Securities Inc., citing rising content costs, continued customer losses and concern about the company’s “growth at all costs business model.” Wedbush gave a 12-month price estimate of $45 a share.

Investors should buy U.S. stocks as an indicator of momentum and breadth on the S&P 500 has reached “oversold” levels, according to the technical analysis team at UBS AG.

An indicator called McClellan Oscillator, which measures the moving average of net advancing shares in a market, has moved into a low phase from where a “lasting bounce” may start and continue for several days.

“We have increasing evidence that another important short- term cycle low is in place, which simply means the market is back in tactical bull mode,” Marc Muller and Michael Riesner wrote in a report yesterday.

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

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net