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Dow leaps 286 points

Speculation about Fed, European crisis improve three key stock indices

Posted: June 7, 2012 1:55 a.m.
Updated: June 7, 2012 1:55 a.m.

Getco Securities traders Philip Finale, left, and its floor official Peter Giacchi, right, work on the floor of the New York Stock Exchange on Wednesday.

 

NEW YORK (AP) — Hope that European leaders will take steps to ease the region’s debt crisis sent stocks surging to their best day this year Wednesday.

Speculation that the Federal Reserve could make another move to help the flagging U.S. economy also drove traders out of bonds and into stocks Wednesday after weeks of losses.

News reports said Germany and European Union officials were considering a plan to lend money from the European bailout fund to help rescue Spain’s hobbled banks.

Jeff Kleintop, chief market strategist at LPL Financial, said the market appeared to be turning on rumors. But the all the talk was enough to convince some traders that the worst was over for now.

As of Monday, worries about Greece and Spain had pulled the Standard & Poor’s 500 index down nearly 10 percent from its peak in early April. “The next 10 percent move is not down, it’s up,” Kleintop said.

The rally started early and gathered force in the afternoon. The charge turned the Dow Jones industrial average positive for 2012 and erased the biggest loss of the year less than a week after it happened: the 275-point plunge set off by a dismal U.S. jobs report on Friday.

The Dow Jones industrial average surged 286.84 points Wednesday to close at 12,414.79, its biggest gain since December 20.

LPL has started to pull back on bets against the S&P 500 and the euro. “We’ve decided it’s time to declare victory,” Kleintop said.

A speech by a Federal Reserve official also added to speculation that the Fed may take more steps to bolster the U.S. economic recovery. Dennis Lockhart, president of the Fed’s Atlanta regional bank, says weak job growth over the past two months highlighted the “halting and tenuous” recovery. If the trend continues, “further monetary actions to support the recovery will certainly need to be considered,” he said.

Federal Reserve Chairman Ben Bernanke will likely be asked about more actions to help the economy when he testifies before a congressional committee on Thursday.

Companies whose stocks have been clobbered the most over the past month had the best gains. Homebuilders rallied, helped by a strong earnings report from Hovnanian Enterprises and rising applications for new mortgages. Hovnanian’s CEO said he sees signs that the housing industry may be entering the early stages of recovery. The Mortgage Bankers Association reported that applications for mortgages rose 1.3 percent last week, largely a result of more people trying to refinance their existing loans.

Hovnanian leapt 18 percent. PulteGroup Inc. surged 7 percent and Lennar Corp. 4 percent.

The gains were spread across the market. Only 11 companies in the S&P 500 dropped, and every industry group in the index rose, led by energy and financial companies. Roughly seven stocks rose for every one that fell on the New York Stock Exchange.

Jim Russell, chief equity strategist at U.S. Bank Wealth Management in Cincinnati, Ohio, said it’s natural for the market to have a strong day after an extended beat-down. On such days, it’s usually the companies that were hit the hardest that fare best.

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