Stocks in Europe Climb as Yields Decline at Auction; Copper, Oil Advance

By Stephen Kirkland and Lynn Thomasson - Jan 12, 2012 7:49 PM GMT+0700
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Oil rose on speculation supplies may be cut by a strike in Nigeria and the threat of sanctions on Iran. Photographer: Jock Fistick/Bloomberg

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Jan. 12 (Bloomberg) -- Edwin Merner, president of Atlantis Investment Research Corp., talks about the outlook for Japan stocks and his investment strategy. Japan stocks fell, snapping a two-day advance, as a shrinking German economy fed concern Europe is headed toward a recession. Merner speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

European stocks rose and the euro strengthened as Spain sold almost double the amount planned and Italy’s borrowing costs fell at debt sales today. Copper climbed after Chinese inflation cooled, and oil gained on concern sanctions against Iran will cut supply.

The Stoxx Europe 600 Index added 0.8 percent at 7:45 a.m. in New York. Standard & Poor’s 500 Index futures added 0.6 percent. The euro appreciated 0.5 percent to $1.2771. The Spanish two-year note yield dropped to less than 3 percent for the first time since April 2011, with the extra yield investors demand to hold Italian 10-year bonds instead of benchmark German bunds slipping 42 basis points. Copper climbed 2.3 percent, and oil gained 1.2 percent to $102.10 a barrel.

Spain sold 9.98 billion euros ($12.7 billion) of notes, compared with a target of as much as 5 billion euros, while the yield on Italy’s one-year bills fell to 2.735 percent. China reported inflation slowed to a 15-month low in December, and the Federal Reserve said yesterday the U.S. economy improved last month across most of the country. Japan said it may reduce petroleum imports from Iran, which has threatened to shut the Strait of Hormuz.

“The carry trade, with banks borrowing from the European Central Bank and then investing in short term government notes, will continue to be supportive for Spanish and Italian yields,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam.

Banks Rally

Financial companies led gains in the Stoxx 600. Royal Bank of Scotland Group Plc (RBS) jumped 8.6 percent as Britain’s biggest government-owned lender said it will cut 3,500 jobs at its investment bank. ING Groep NV, the largest Dutch financial- services company, advanced 7.7 percent after saying it will explore other options for the planned disposal of its Asian insurance and investment-management businesses.

A gauge of European retailers had the biggest drop since May 2010. Tesco Plc plummeted 13 percent, the most since at least 1988, after the U.K.’s largest supermarket chain reported Christmas sales that missed analyst estimates and reined back profit expectations. Delhaize Group SA, the owner of the U.S. Food Lion supermarkets, sank 9.1 percent in Brussels after also reporting sales that trailed projections.

The advance in S&P 500 futures indicated the U.S. gauge will extend three days of gains. Chevron Corp. (CVX) slid 1.6 percent in pre-market trading as the second-largest U.S. energy company said fourth-quarter profit was “significantly below” that of the previous period.

Retail Sales

A Commerce Department report at 8:30 a.m. in Washington may show sales at U.S. retailers rose in December as Americans bought discounted holiday items. The projected 0.3 percent gain would follow a 0.2 percent advance in November, according to the median forecast of 75 economists surveyed by Bloomberg. First- time jobless-benefit claims were little changed last week, another release may show.

The MSCI Emerging Markets Index (MXEF) gained 0.7 percent, bound for the highest close since Dec. 7. Benchmark gauges in Russia, Poland, Turkey and Hungary climbed at least 1.1 percent. The BSE India Sensitive Index (SENSEX) fell 0.9 percent as Infosys Ltd. cut its full-year forecast for sales in dollar terms. The Hungarian forint jumped 1.5 percent after the government sold more bonds than planned and financing costs fell at an auction today.

The yield on Spain’s two-year note dropped for the fourth straight day, sliding 18 basis points to 2.91 percent. Italy’s 10-year yield sank 40 basis points. The yield on the French 10- year bond dropped nine basis points, narrowing the difference in yield with bunds 11 basis points.

Treasury Auction

The yield on the 30-year U.S. Treasury bond rose two basis points to 2.99 percent before the government sells $13 billion of the securities, the last of three auctions this week totaling $66 billion.

The euro strengthened against 11 of its 16 major counterparts, gaining 0.5 percent against the yen. The ECB kept its benchmark interest rate at 1 percent today, matching the forecast of economists surveyed by Bloomberg.

Copper led the S&P GSCI gauge of 24 commodities which increased 1 percent. China is the biggest buyer of the metal. Wheat rose 0.8 percent and corn gained 1.1 percent. Japan bought 139,239 metric tons of milling wheat from the U.S. today, the most in two months, the Ministry of Agriculture, Forestry and Fisheries said.

Natural gas dropped as much as 2.7 percent to $2.70 per million British thermal units, the lowest price since September 2009.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net