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Draghi Drives Up Stocks

by on July 26, 2012 6:26 pm BST
 

NEW YORK—Investors cheered comments from Europe’s central bankers that showed support for the euro zone, driving stocks sharply higher and pushing down Treasury prices.

The Dow Jones Industrial Average ran up 197 points, or 1.6%, to 12872 in Thursday afternoon trading. The blue chips climbed as many as 255 points earlier.

The Standard & Poor’s 500-stock index surged 20 points, or 1.5%, to 1357, and the Nasdaq Composite Index advanced 31 points, or 1.1%, to 2885. All 10 of the S&P 500’s sectors gained; telecommunications and energy companies paced the rally.

Europe’s top central banker sparked a stock-market rally after reassuring investors the European Central Bank will be vigilant about holding together the euro zone. Paul Vigna has details on Lunch Break. Photo: AP.

Sprint Nextel

surged after the telecom company reported a narrower-than-expected second-quarter loss on higher-than-anticipated revenue and a gain in contract subscribers.

Exxon Mobil

gained after the oil major reported that its second-quarter earnings rose 49%, although exploration and production profits fell on lower energy prices and production.

Shares of 3M

added after the company’s second-quarter earnings topped analysts’ estimates, and it maintained its full-year outlook.

Investors took some comfort in a pair of better-than-expected economic reports. A reading from the Labor Department showed the number of U.S. workers filing for unemployment benefits fell far more than expected last week. Elsewhere, orders for durable goods rose in June more than forecast on a surge of aircraft sales.

“We were seeing higher jobless-claims numbers and by now a lot of that seems to have worked its way through,” said Tracie McMillion, Wells Fargo

Private Bank Asset Allocation Strategist. “I think people should be encouraged,” Ms. McMillion said.

The real fuel for Thursday’s gains came from Mario Draghi, who said the ECB is ready to do whatever it takes to preserve the common-currency union. The central-bank president indicated the ECB’s willingness to restart bond purchases at a time when Spanish government bond yields have hit euro-era highs.

Zynga Stock Pummeled on Earnings Loss

4:39

On Wednesday, online games maker Zynga showed its vulnerability as the company’s stock plunged 40% following weak quarterly results. George Stahl has details on The News Hub. Photo: Reuters.

Mr. Draghi’s remarks were later underscored by European Central Bank policy maker Christian Noyer, lending additional support for market gains.

Today’s rally is “all a function of Mario Draghi’s comments, which at least implies that the ECB stands ready to do more, and perhaps go as far as the quantitative easing that we’ve had in the U.S.,” said Richard Golinski, principal and chief investment officer of Bingham, Osborn & Scarborough in San Francisco, referring to the Federal Reserve’s bond-buying program.

The comments are “providing strong support today, but at the same time, there’s an underlying skepticism; they were at a point where somebody had to say something, but the real question is, are actually prepared to follow through?,” Mr Golinski said.

European markets turned sharply higher after the statement, and the Stoxx Europe 600 rallied 2.5% to break a four-session streak of declines. France’s CAC 40 shot up 4.1%, and Germany’s DAX shot up 2.8%. The euro rose more than 1% against the U.S. dollar to reach a weekly high around $1.2285.

The spike in the euro helped drive oil and gold higher, as the dollar-denominated commodities become cheaper for consumers in other countries as the dollar falls. Crude-oil futures rose 0.7% to $89.61 a barrel after briefly topping $90. Gold futures gained 0.4% to $1614 a troy ounce, a day after settling at its highest price in over two weeks Wednesday. The yield on the 10-year U.S. Treasury rose to 1.431% as demand for haven assets fell, although the U.S. government sold seven-year notes at a record-low yield.

Mr. Draghi’s statement was “very emphatic, and it was clearly meant to dispel some of the panic,” said Christian Bertelsen of Global Financial Private Capital.

[image]European Pressphoto Agency

ECB President Mario Draghi

Asian markets closed mostly higher, before Mr. Draghi’s comments. Japan’s Nikkei Stock Average rose 0.9% to snap a four-session losing streak. China’s Shanghai Composite slipped 0.5% to close at the lowest level seen since March 2009.

But all wasn’t rosy on Wall Street. Zynga

plunged after the videogame maker missed second-quarter expectations and slashed its outlook for the year, citing delays in launching new games and a more challenging environment on Facebook

. Shares of that social-media giant sank 6.6% ahead of its first quarterly earnings report as a publicly traded company, due after Thursday’s close.

Among other stocks, Dow Chemical

fell after the company’s second-quarter earnings and revenue missed estimate, citing declining prices resulting from a slowdown in global economic growth.

United Technologies

inched up after the conglomerate agreed to sell some industrial products businesses to BC Partners and Carlyle Group

for $3.46 billion. The Dow component also reported second-quarter earnings that topped analysts’ estimates, while revenue fell short.

MetroPCS Communications

surged after discount wireless-phone company’s profit surged, as costs fell due to a drop in the company’s subscriber base.

Western Digital

leapt after the hard-disk drive maker reported fiscal fourth-quarter results that were well above forecasts and provided an upbeat outlook for the current fiscal year.

Akamai Technologies

jumped after the Internet technology company’s quarterly results topped its own earnings forecast.

Whole Foods Market

rallied after the grocer reported fiscal third-quarter earnings that topped estimates and raised its full-year outlook.

Three stock-market debuts made a lackluster showing. Cloud-computing firm E2open began trading below its offering price and was down shortly before noon. Energy partnership Northern Tier Energy

also opened below its $14 offer price, though it then moved ahead slightly. Only pharmaceutical firm Hyperion Therapeutics both opened above its offer price of $10 and held gains.

Write to Chris Dieterich at chris.dieterich@dowjones.com