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Hope lifts Wall Street before Greek elections

posted 15 Jun 2012, 14:23 by Mpelembe   [ updated 15 Jun 2012, 14:24 ]

U.S. stocks rally on hopes of group action by global central banks in response to any market turbulence caused by the upcoming Greece elections. This optimism helped assuage concerns about weak U.S. economic data.

U.S. stocks rallied on Friday (June 15) to close a second straight week of gains on hopes of collective action from global central banks if Sunday's (June 17) election in Greece triggers market turmoil.
The news helped offset the latest round of weak U.S. economic data, which pointed to sluggish domestic growth. But traders were cautious and safe-haven U.S. bond prices also rose on Friday.

Materials, energy and financial shares led the market's gains, with each of the three S&P 500 sector indexes up 1 percent or more.

Officials of the Group of 20 leading nations told Reuters on Thursday (June 14) that central banks of major economies would take steps to stabilize markets and prevent a credit squeeze, if necessary. The news spurred sharp gains late in Thursday's session.

Later reports of the European Central Bank hinting at an interest-rate cut and Britain's pledge to flood banks with cash sparked further bullishness.

Some investors fear the Sunday elections in Greece may set the nation on the path to an exit from the euro zone. That possibility created volatility this week.

Andrew Goldberg, a global market strategist with J.P. Morgan Funds pointed out that that uncertainty in Greece could have a tremendous impact on American markets but that there was also a silver lining to worries about the Greek economy.

"If there's a silver lining there, it's been that the banks have had plenty of time to prepare for this. And the federal reserve in the U.S. is very battle hardened at this point and doing everything they can to make sure that the U.S. banking system doesn't catch that cold," Goldberg said.

He added that the U.S. Federal Reserve could take a few steps to instill confidence.

"The first one is -- just verbally to reiterate that they will backstop U.S. banks. The second thing that they can do and it's become commonly referred to as Operation Twist, but it's basically a maturity extension program where they're helping to keep long term interest rates low by buying those longer maturity bonds, they can do that. And the third thing I would call it a wild card, the federal reserve has proven time and time again that when the going gets tough they can get creative," he explained.

For the week, the Dow industrials gained 1.7 percent, the S&P 500 added 1.3 percent and the Nasdaq rose 0.5 percent. Despite the stock market's gains, the safe-haven U.S. Treasury 10-year note shot up 18/32 in price, with the yield at 1.579 percent.

On Friday, the Dow Jones industrial average gained 115.26 points, or 0.91 percent, to 12,767.17 at the close. The Standard & Poor's 500 added 13.74 points, or 1.03 percent, to 1,342.84. The Nasdaq Composite rose 36.47 points, or 1.29 percent, to end at 2,872.80.

Spain's banking system remains an issue weighing on markets and the country's 10-year bond yield, at 6.92 percent, was still too close to the 7 percent mark at which other highly indebted euro-zone nations were forced to seek bailouts.

A gauge of manufacturing in New York state fell sharply in June, though it still showed growth, while an early June reading on consumer sentiment slipped to a six-month low on worries about the U.S. job market and Europe's debt crisis. The consumer sentiment reading was was below consensus forecasts.

Recent economic indicators, including Thursday's unexpected rise in jobless claims, have pointed to sluggish growth in the U.S. economy. However, U.S. equities have largely tracked European developments in recent months, and shrugged off weak domestic data on occasion.

The lackluster U.S. data, alongside the possible turmoil following the Greek elections, could increase the chance that the Federal Reserve will signal more stimulus to counter slowing growth when it releases its policy statement next Wednesday (June 20) at the close of a two-day meeting.