New York: US shares rocketed higher and bond prices fell on Monday after investors were reassured by a nearly $1 trillion bailout plan to avoid a European debt crisis.
The Dow Jones industrial average rose about 430 points. The Dow and broader stock indexes rose more than 4%. Markets also barreled higher in Europe.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.57% from 3.43% late on Friday. Its price fell by about a point, or $1, as demand for safe investments eased.
“The market is breathing a huge sigh of relief that the EU has taken aggressive steps to contain the EU crisis in the weaker states,” said Alan Gayle, senior investment strategist at RidgeWorth Investments.
The 16 countries that use the euro and the International Monetary Fund have agreed to create a nearly $1 trillion rescue fund to support European nations burdened by heavy debt. Markets around the world plummeted last week as fears escalated that Greece’s debt problems would spread throughout Europe and upend a global economic recovery.
Investors also feared that if Greece didn’t get a bailout, the fate of the euro, which is used by 16 countries, could be in trouble. The euro rose on Monday against the dollar.
“Europe has unequivocally said, ’We will defend the euro’s integrity,”’ said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, New York.
The US Federal Reserve and other central banks also stepped up with financial support to help head off what some analysts believe could have been a broader financial crisis.
The Fed reopened a programme launched in 2008 during the credit crisis under which dollars are shipped overseas through the foreign central banks. Those central banks can then lend the dollars out to banks in their home countries.
Aside from the Fed, other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan are also involved in the dollar swap effort.
In midday trading, the Dow rose 427.15 points, or 4.1%, to 10,807.58. The Standard & Poor’s 500 index rose 49.28 points, or 4.4%, to 1,160.16. The Nasdaq composite index rose 102.95 points, or 4.5%, to 2,368.59.
Stocks were highly volatile at the end of last week as investors shrugged off signs of an improving US economy and focused on Europe’s sovereign debt problems. The Dow fell 5.7% last week to erase its gains for the year, while broader indexes fell even further. On Thursday alone, the Dow was down nearly 1,000 points late in the day before recovering much of its losses.
Stocks have dropped four straight days as triple-digit Dow moves have again become the norm. Big swings were also common as the credit crisis grew in late 2008 and the market bottomed in early 2009. In recent months, however, the Dow had been climbing slowly and steadily on repeated signs the economy was recovering.
Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh, said the market’s bounce reflects shortcovering. That occurs when investors are forced to buy stock after having earlier sold borrowed shares in a bet that the market would fall. That rush to cover ill-timed bets can hasten the market’s climb.
“You don’t solve the problem of debt by printing new money,” Smith said. “Whatever euphoric action we’re seeing, there is going to be a need for EU banks to raise more capital.”
As investors jump back into riskier assets like stocks on Monday, US bond prices tumbled. Gold also fell. Both surged late last week as investors piled into safe assets.
Gold fell $13.30 to $1,197.10 an ounce.
At the New York Stock Exchange, 3,004 shares rose while only 110 fell. Trading volume came to 773 million shares compared with 1.1 billion traded at the same point Friday.