New York: Welcome news on housing and inflation drove US stocks and oil higher on Tuesday and gave investors reason to raise their tolerance of risk, lifting the dollar versus the yen.
Oil rose nearly $2 a barrel as a 22.2% jump in US housing starts, the biggest percentage gain since January 1990 and the first rise since April, sparked hopes the data is a sign a deep US recession has finally touched bottom.
The major US stock indexes surged more than 2% as surprisingly strong US housing data whetted risk appetite and sapped the bid for safe-haven government debt.
Also driving investor optimism was a smaller-than-expected rise in the producer price index for the month of February, which dented the inflation-hedge appeal of gold.
But the housing data sent the most ripples across Wall Street, mired in the worst bear market since the Depression.
“The housing start figures were way above expectations,” said Mike Zarembski, senior commodities analyst for optionsXpress.
If the data proves to be more than a one-off event it would show that the housing market is on the mend and “would improve the whole psychological aspect of the economy,” he said.
The Dow Jones industrial average closed up 178.73 points, or 2.48%, at 7,395.70. The Standard & Poor’s 500 Index rose 24.23 points, or 3.21%, at 778.12. The Nasdaq Composite Index gained 58.09 points, or 4.14%, at 1,462.11.
Home Depot rose 6.7% on the housing data, and shares of beaten-down homebuilders also gained. The Dow Jones home construction index jumped 6.2%.
Rising oil prices drove hopes of economic recovery, making Chevron and Exxon Mobil the two biggest gainers on the Dow. Chevron rose 3.8% and Exxon 3.2%.
Optimism about the banking sector has helped US stocks to rebound from the 12-year lows they slumped to earlier this month. The KBW bank index jumped 6.1%.
Shares of networking equipment maker Cisco jumped 4.5% after Goldman Sachs added the stock to its conviction buy list.
European shares fell after five straight sessions of gain as weakness in mining shares on a drop in metal prices and news of Alcoa’s dividend cut outweighed banking sector gains.
The FTSEurofirst 300 index of top European shares closed 0.7% lower at 715.83 points.
The dollar rose against the yen, as did the euro, which rose above ¥128, just shy of its highest level this year. The euro also gained against the dollar, lifted partly by data showing improvement in German investor sentiment.
The dollar fell against a basket of major currencies, with the US Dollar Index down 0.15 percent at 86.842. Against the yen, the dollar rose 0.38% at 98.54.
US light crude for April delivery settled up $1.81 at $49.16 on the expiration day for April crude oil options, the highest settle since 1 December, 2008.
Gold fell as the rally on Wall Street and a surprise surge in US housing starts reduced the precious metal’s appeal as a safe haven investment.
Asian stocks overnight jumped to a one-month high. MSCI’s index of Asia Pacific shares traded outside Japan rose for a third day, gaining 1.1% after touching a one-month high.