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Stocks rise on Wall Street after China cuts rate

Posted: June 7, 2012 10:15 a.m.
Updated: June 7, 2012 10:15 a.m.

NEW YORK (AP) - Stocks rose on Wall Street Thursday after China cut its benchmark lending rate in another bid to boost its slowing economy, but an early rally faded after Federal Reserve Chairman Ben Bernanke gave no signal of immediate action to prop up the U.S. economy.

The Dow Jones industrial average was up 80 points at 12,494 shortly after noon. It had been up as much as 140 points earlier. On Wednesday the stock market had its biggest gain of the year on hopes that more economic stimulus might be on the way in the U.S. and Europe.

China cut its benchmark lending rate for the first time in nearly four years, adding to efforts to reverse a sharp economic downturn. It was the first rate cut since November 2008.

"Markets received a near-term shot of adrenalin from China," said Matthew Kaufler, portfolio manager at mutual fund group Federated Investors. "China is the world's economic locomotive at the moment and it can't afford to slow down at a time when other major economies are in precarious positions."

Beijing has rolled out a series of measures to stimulate its economy after growth fell to a nearly three-year low of 8.1 percent in the first quarter and April factory output grew at its slowest rate since the 2008 crisis. Private sector analysts expect this quarter's growth to fall further.

The rate cut is a huge boost for global investors. China has been a major engine of global economic growth over the past few years as the U.S. sputtered and debt crises spread through several countries in Europe.

Industrial stocks that rely heavily on the Chinese market for sales were among the biggest gainers on the New York Stock Exchange. Heavy equipment maker Caterpillar rose $1.17 to $87.83, one of the biggest gains among the 30 stocks that make up the Dow Jones industrial average.

The stock market pulled back a little from earlier gains after Bernanke said that the Fed remains ready to act if the economy needs it, but he didn't say any new steps were on the way.

"As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate," Bernanke told the congressional Joint Economic Committee Thursday.

Investors have been worried because a bleaker view of the economy has taken hold in recent weeks, especially as hiring has weakened. U.S. employers added just 69,000 jobs in May, the fewest in a year. Since averaging a robust 252,000 a month from December through February, job growth has slowed to a lackluster 96,000 a month. The U.S. economy grew at a tepid annual rate of 1.9 percent in the first three months of 2012.

Some traders had hoped that Bernanke would signal more action from the U.S. central bank after Atlanta Federal Reserve President Dennis Lockhart said that sustained weakness in job creation could justify more action to support the economic recovery. The Fed's latest bond-buying program is scheduled to wind down at the end of this month.

Investors' fears had also been growing that a collapse of Europe's euro currency union could trigger a panic and cause a global recession.

Some of those fears were allayed Thursday on hopes that Europe is preparing to give Spain financial aid to help the country rescue its banks. Spain is reluctant to accept a full-fledged bailout from its partners in the euro because that would mean giving up control over some of its domestic policies.

Spain successfully raised $2.62 billion Thursday from the bond markets. The interest rate on its benchmark 10-year note fell to 6.02 percent from 6.26 percent late Wednesday, a big drop. Those are positive signs that bond investors are more willing to lend the country money.

In other trading, the Standard & Poor's 500 index rose five points to 1,320 and the Nasdaq composite index rose four points to 2,848.

Among other stocks making big moves:

- Molina Healthcare plunged $7.62, or 30 percent, to $18.14, after the health insurer withdrew its 2012 profit forecast, citing a possible revenue shortfall in Texas. Molina said member claims in Hidalgo and El Paso have far exceeded its estimates and as a result, the premium revenue it is collecting there will not likely be enough to cover its medical costs.

- Men's Wearhouse dropped $5.66, 16 percent, to $29.91 after the clothing chain reported lower-than-expected results and issued a weak forecast for its second quarter.

Copyright 2012 The Associated Press.




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