US
US stocks rally
Posted Tue, 21 Jul 2009

US stocks rallied on Monday as an improved outlook for corporate earnings and reports of a private-sector rescue for business lender CIT Group helped the market extend hefty gains from last week.

The Dow Jones Industrial Average climbed 104.21 points (1.19 percent) to close at 8848.15, building on a gain of more than 7.0 percent last week.

The technology-heavy Nasdaq jumped 22.68 points (1.20 percent) to 1909.29 and the broad Standard & Poor's 500 index advanced 10.75 points (1.14 percent) to 951.13.

The market extended gains inspired by stronger-than-expected earnings from major companies and economic data suggesting the worst of the recession is over.

Also helping were news reports suggesting troubled lender CIT may avert bankruptcy through a lifeline from bondholders.

"It appears that investors are, once again, embracing the idea that the bottom has formed and stock prices' next big move is up," said Kevin Giddis at Morgan Keegan.

"I don't know if this is true or not, but the fundamentals would lead you to think that it may be a bit premature to think this. But on the other hand, there are more things to cheer about than there was a month ago."

On the economic front, the Conference Board said its index of leading economic indicators, a measure of activity in the coming months, climbed 0.7 percent in June after a 1.3 percent increase in May and a 1.0 percent rise in April.

The increase was stronger than market forecasts for a 0.5 percent rise in June.

"The recession is nearly out of steam," said Joel Naroff of Naroff Economic Indicators after the Conference Board report.

"It's coming, yes it is. Maybe not quite yet. But I no longer feel as if I am stuck in a Samuel Beckett play waiting and waiting and waiting."

Also helping sentiment, Goldman Sachs strategists raised their year-end target for the S&P 500 to 1060, which would mean a gain of around 13 percent from current levels, while raising its expectations for earnings for the 500 firms.

"We anticipate a more extended 'sustained rally' in the US equity market during the second half of 2009," wrote Goldman's David Kostin in a note to clients.

He said Goldman's forecast "suggests economic stabilization in the second half 2009 is plausible" which will help boost earnings.

CIT Group, which last week appeared on the brink of bankruptcy, surged 78 percent to 1.25 dollars on news that its bondholders were prepared to extend further credit to help avert a collapse of the big lender.

"A major thorn in the bulls' side could be removed very soon, as CIT Group Inc. has reportedly secured three-billion dollars in private bailout capital," said Joseph Hargett of Schaeffer's Investment Research.

Among other stocks in focus, Cisco Systems rose 3.07 percent to 21.15 dollars as the tech giant was upgraded by brokers at Credit Suisse.

Heavy equipment maker Caterpillar, seen as sensitive to economic trends, rallied 7.83 percent to 36.65 dollars ahead of its earnings report Tuesday.

Human Genome Sciences meanwhile surged 276 percent to 12.51 dollars after the biotech firm reported positive results from a year-long clinical trial of a new treatment for lupus being developed with GlaxoSmithKline, whose US shares gained 3.99 percent at 37.81.

Bonds rebounded somewhat from last week's losses. The yield on the 10-year US Treasury bond dipped to 3.585 percent from 3.651 percent on Friday and that on the 30-year bond fell to 4.466 percent against 4.529 percent. Bond yields and prices move in opposite directions.