New York: The Dow and the S&P 500 scored their biggest gains in three months on Wednesday as efforts to resolve the EU’s debt crisis helped push the S&P above 1,200, an important technical level that signals the potential for the rally to continue.
The S&P 500 moved out of its recent trading range as some of the panic of previous days eased. Investors focused on valuations that many analysts say are cheap, but volume was average in a sign fund managers were not fully participating.
Economically sensitive cyclicals led a broad rally. Aluminum producer Alcoa Inc rose 3.4% to $13.57, while retailer Home Depot Inc, whose fortunes are tied to the U.S. consumer, jumped 4.6% to $31.61. Heavy equipment maker Caterpillar Inc hit a 52-week high at $87.80 and then eased up a bit to close at $87.45, up 3.4% for the day.
Stocks rallied as speculation grew that the European Central Bank could step up its purchases of government debt and a US official told Reuters Washington would support boosting an EU rescue facility via IMF funds.
“It seems that as bad as Europe’s issues are, there is a growing sense this is not a systemic problem that is going to bring the whole system down,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “Beyond their troubles, we’re seeing strong results in other parts of the world.”
The global economic recovery remained sound. US private-sector payrolls achieved their biggest gain in three years, according to ADP data, while global manufacturing picked up speed, boosted by China and Germany.
The US-traded stock of Banco Santander, the Spanish bank in the eye of the euro storm, jumped 7.9% to $10.38. US investors have sold the stock relentlessly in recent weeks, turning it into a proxy for euro-zone risk aversion.
The Dow Jones industrial average gained 249.76 points, or 2.27%, to 11,255.78. The Standard & Poor’s 500 Index rose 25.52 points, or 2.16%, to 1,206.07. The Nasdaq Composite Index added 51.20 points, or 2.05%, to 2,549.43.
Composite daily volume was moderate, with 8.47 billion shares traded on the New York Stock Exchange, the American Stock Exchange, and the Nasdaq, compared with a daily average of 8.48 billion so far this year.
“On a day like this, I’d like to see bigger volume,” said Kenneth Polcari, managing director at Icap Corporates in New York, an NYSE floor trader. “Then it indicates that there is some real muscle behind it.”
Polcari said traders could dominate through the end of the year as fund managers refrained from making big bets before year end.
Stocks extended gains after a US official told Reuters the United States would back a larger European financial stability fund. The growing euro-zone debt crisis has sunk stocks in recent weeks, making any step toward resolution important to the market’s sustained recovery.
This was later denied by a US Treasury Department spokesman, but that had little effect on investors.
Any optimism over recent steps to rein in the euro zone’s debt problems has been short-lived. The EU/IMF rescue of Ireland over the weekend was overshadowed by concerns about Portugal and other countries.
The S&P 500 traded above its 14-day moving average for the first time in 11 sessions, pushing through the recent resistance point of 1,200. The Dow and the S&P 500 rose the most on a daily%age basis since 1 September, the day when stocks began an autumn rally that drove the S&P up nearly 17%. At Wednesday’s close, the Nasdaq scored its biggest one-day%age gain since 5 October.
For the S&P 500, a close above 1,200 means “the next stop is 1,225 to 1,230,” said Tom Alexander, head of Alexander Trading in Savannah, Georgia.
That target area coincides with a recent two-year high and the 61.8% Fibonacci retracement of the benchmark’s slide from October 2007 to March 2009, a key technical indicator.
The economic optimism helped boost the Dow Jones Transportation Average, which posted its second gain of more than 2% in less than a week, catapulting it to its highest level since September 2008. Wednesday’s advance was led by gains in FedEx Corp, up 3.2% at $93.99, and CSX Corp, up 3.5% at $62.94.
The S&P 500 retail sector index rose 1.8% to 499.08, its highest level since July 2007, reflecting an optimistic outlook for the holiday shopping season.
Advancers beat decliners on the NYSE by a ratio of 7 to 2, while on the Nasdaq, about five stocks rose for every two that fell.