Stocks Rise as Euro-Yen Nears Decade Low; U.S. Futures Little Are Changed

By Shiyin Chen and Norie Kuboyama - Dec 30, 2011 3:09 PM GMT+0700

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Dec. 29 (Bloomberg) -- Jeff Papp, an analyst at Oberweis Asset Management Inc., talks about the outlook for China's economy and stock markets in 2012, and his investment strategy. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Stocks (MXAP) and commodities rose, paring the first annual loss in three years, as signs the U.S. economic recovery is strengthening countered concern Europe’s debt crisis will worsen. The euro was near a decade-low against the yen.

The MSCI All Country World Index added 0.3 percent as of 8:02 a.m. in London, set for a 9.5 percent decline this year. Standard & Poor’s 500 Index futures were little changed and Treasury 10-year yields rose one basis point to 1.91 percent. The S&P GSCI Total Return Index of raw materials gained 0.3 percent as copper jumped 1.4 percent and gold snapped three days of losses. The euro slid 0.2 percent versus the yen and weakened 0.2 percent against the dollar.

Global equity markets have lost $6.3 trillion in value this year as Europe’s debt crisis and slowing economic expansion worldwide weighed on investor demand for riskier assets. Italy yesterday raised less than its maximum target at a debt auction. Data yesterday showed U.S. home sales rose more than economists forecast and jobless claims dropped over the past month to a three-year low.

“This year, the world was swayed by the European debt crisis,” said Takashi Aoki, who helps manage 120 billion yen ($1.5 billion) at Tokyo-based Mizuho Asset Management Co. “More investors think the U.S. economy is firmer and growing slowly, and this will last for a while. Europe has entered a recession but it’s unlikely to deteriorate badly. Emerging counties are transitioning from economic slowdown to faster growth again.”

Europe’s Declines

The Stoxx Europe 600 Index advanced 0.4 percent, paring its 2011 loss to 12 percent. An index of bank shares on the gauge has dropped 33 percent this year, the worst performance among 19 industry groups. The Stoxx 600’s decline this year compares (MXAP) with an 18 percent drop in the MSCI Asia Pacific Index and a 0.4 percent increase in the S&P 500.

About two shares advanced for every one that fell on MSCI’s Asia Pacific index, which rose 0.4 percent. Japan’s Nikkei 225 Stock Average added 0.7 percent and Hong Kong’s Hang Seng Index gained 0.2 percent. South Korean and Philippine financial markets are closed today.

Gree Inc. (3632), a social-network operator, has rallied 157 percent this year, the best performer on MSCI’s Asia Pacific index. Tokyo Electric Power Co. (9501), whose Fukushima Dai-Ichi nuclear station was wrecked by the March 11 earthquake, is the worst performer, losing 91 percent this year.

The Shanghai Composite Index rose 1.2 percent even after HSBC Holdings Plc and Markit Economic said a purchasing managers’ index was at 48.7 in December. That compares with a preliminary result of 49 reported on Dec. 15 and a final reading of 47.7 for November.

‘Firmer’ U.S. Economy

The S&P 500 erased losses (SPX) for the year after data yesterday showed the National Association of Realtors’ index of pending home sales increased 7.3 percent to the highest level since April 2010. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

Other figures showed business activity in the U.S. expanded more than forecast in December, while the four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department data showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than-forecast 15,000 to 381,000.

“Investors increasingly feel the U.S. economy is firmer than they had expected,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The economic data is looking good and that will boost stock markets, especially when concern about Europe’s debt issues aren’t in the forefront.”

Yearly Gain

Treasuries fell for the first time in four days amid speculation the rally that pushed U.S. government securities to their best yearly gain since 2008 will give way to losses in 2012 as the economy improves. American debt returned 9.6 percent in 2011 as of yesterday, according to Bank of America Merrill Lynch data, even after S&P cut the U.S.’s AAA credit rating on Aug. 5.

The cost of insuring corporate and sovereign bonds against non-payment fell in Asia, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreasing two basis points to 204.5, according to BNP Paribas SA prices. At those levels, the gauge will have climbed 101.5 basis points this year, the biggest gain since 2008 when it advanced 275 basis points, according to data provider CMA.

Europe’s shared currency fell yesterday to 100.06 yen, the weakest level since June 2001, after Italy auctioned 7 billion euros ($9 billion) of debt. That fell short of the 8.5 billion- euro target even as borrowing costs declined from last month. Italian 10-year yields rose three basis points to 7.03 percent after the sale.

‘Dire’ Sentiment

The 17-nation euro has dropped against the dollar and yen this year amid concern the debt crisis will weigh on the region’s economy growth. Data next week may confirm European manufacturing contracted for a fifth straight month.

“The risks in Europe will get worse before it gets better,” said Matt Brady, an executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “Risk sentiment is going to be dire as we head into 2012 and I’m not a believer in being long any risk currencies.”

The Australian dollar rose 0.1 percent to $1.0148, while New Zealand’s currency gained 0.1 percent to 77.24 U.S. cents. The currencies are poised to end the year lower against their U.S. counterpart. China’s yuan climbed to a 17-year high of 6.3070 per dollar. It gained 4.4 percent this year, beating the 3.6 percent advance in 2010.

Copper, Gold

S&P’s GSCI Total Return Index (SPGSCITR) of raw materials has slipped 0.8 percent this year. Three-month copper rallied 1.3 percent to $7,522.75 a metric ton in London, paring a 22 percent annual fall. Oil for February delivery was little changed at $99.66 a barrel in New York after having gained 9.1 percent this year. Crude is headed for a third yearly increase on speculation that escalating tension in the Middle East may disrupt supplies.

Gold rebounded from a drop to the lowest level in six months, as the slump that threatened to tip the metal into a bear market spurred purchases. Immediate-delivery gold climbed 1 percent to $1,561.18 an ounce, up 9.9 percent in 2011. Bullion reached a record $1,921.15 on Sept. 6, and would need to close below $1,536.92 to enter a bear market, typically defined as a drop of more than 20 percent.

To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net; Darren Boey at dboey@bloomberg.net