Upbeat US economic figures help stocks advance

AP News
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Posted: Jun 27, 2012 12:51 PM
Upbeat US economic figures help stocks advance

LONDON (AP) — Upbeat U.S. economic figures helped stocks rise on Wednesday, though investors remained skeptical that European leaders would agree to any meaningful debt crisis solutions at their summit later this week.

U.S. government figures showing that durable goods orders rose by 1.1 percent in May after two months of declines, combined with a report about another positive piece of housing data. The National Association of Realtors said pending home sales jumped by 5.9 percent in May, way above the 1 percent predicted.

A recovery in the U.S. housing market is considered one of the key elements toward a stable and long-lasting economic recovery. Its demise in 2007-8 was one of the reasons behind the global financial crisis.

"What we have here is another report to support the view that the U.S. housing is recovering," said Jennifer Lee, an economist at BMO Capital Markets.

That helped investors brush aside ongoing worries about Europe's debt crisis, helping stocks and oil prices up sharply.

In Europe, Germany's DAX rose 1.5 percent to close at 6,228.99, while the CAC-40 in France rose 1.7 percent to 3,063.12. The FTSE 100 index of leading British shares ended 1.4 percent higher at 5,523.92.

On Wall Street, the Dow Jones industrial average was up 0.8 percent at 12,629, and the broader S&P 500 index was 1 percent higher at 1,333.

The gains have come even though expectations over the European Union summit that starts Thursday are low.

With German Chancellor Angela Merkel continuing to voice her opposition to the prospect of jointly-issued eurobonds, investors doubt anything substantial will emerge at the two-day summit in Brussels.

Many experts say eurobonds are the answer to the eurozone's problems because they would help lower indebted countries' borrowing costs, easing the risk they may need a bailout. But Germany is reluctant to expose itself to new potential costs and is concerned that Eurobonds would ease the pressure on countries like Greece and Spain to reform their economies.

"A few brave souls have edged into the market, but enthusiasm is distinctly lacking, as most traders opt to hold their ground and wait to see what decisions, if any, emerge from the eurozone summit," said Chris Beauchamp, market analyst at IG Index.

The run-up to the summit is distinctly different to previous ones over the past two years when investors got ahead of themselves, anticipating game-changing conclusions, only to be disappointed. Though little is expected from the summit, some traders think the European Central Bank may take more aggressive action to ease the crisis and that has helped shore up stocks.

"If the eurozone meeting does not bear any fruit, there will be anticipation of coordinated central bank intervention and a slashing of ECB rates on July 5," said Mike McCudden, head of derivatives at Interactive Investor.

McCudden said a third round of super-cheap long-term loans from the ECB may be in the cards. The second round in December helped stabilize financial markets in the early part of this year, and the hope would be that a repeat performance may occur during the summer months.

With expectations of lower European interest rates, the euro was a little lower at $1.2472.

Earlier in Asia, Japan's Nikkei 225 gained 0.8 percent to close at 8,730.49, while Hong Kong's Hang Seng rose 1 percent to 19,176.95, and South Korea's Kospi was nearly unchanged at 1,817.65.

Mainland Chinese shares were mixed. The Shanghai Composite Index fell for a sixth straight trading day, down 0.2 percent to 2,216.93. The Shenzhen Composite Index rose marginally to 918.38.

Oil prices headed back above the $80 a barrel mark as stocks recovered. Benchmark oil for August delivery was up $1.17 at $80.53 a barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.