Stocks up on upbeat economic reports

By Samantha Bomkamp, The Associated Press
Updated 37m ago

NEW YORK – Stocks held on to small gains in trading Thursday after applications for unemployment benefits fell and several companies reported earnings that were better than Wall Street was expecting, including Bank of America and Morgan Stanley.

The Dow Jones industrial average rose 45.03 points, or 0.36%, to 12,624.00. The Standard & Poor's 500 rose 6.46, or 0.49%, to 1,31450. Both averages are at their highest since July.

The Nasdaq composite rose 18.62, or 0.67%, to 2,788.33.

MORE: Most active stocks
MORE: World stocks
MORE: Economy strengthening, three economic reports show
Volume was slightly above average. The market has been subdued this year: The S&P has moved up or down 1% or more only twice, and the Dow has moved 100 points only once, a 179-point gain on opening day, Jan. 3.

But the gains have been steady. The S&P has closed higher 12 of 14 days, and all three major averages have recorded healthy advances for the young year — 3.3% for the Dow, 4.4% for the S&P and 7% for the Nasdaq composite index.

Stock trend

Dow Jones industrial average, five trading days Events scheduled for Friday that might affect investor sentiment include General Electric's earnings, a report on how home sales fared in December, and a meeting in Rome about the euro debt crisis between Italian Premier Mario Monti, French President Nicolas Sarkozy and German Chancellor Angela Merkel.

Investors appear ready to believe that the economic recovery is for real and getting stronger.

"The market is screaming loud and clear," said Doug Cote, chief market strategist with ING Investment Management. "Prices have lagged fundamentals and now they're catching up."

After the market closed, Google stock plunged more than 10% after its earnings per share badly missed Wall Street expectations. Intel and Microsoft rose slightly in after-hours trading after more encouraging reports.

In a sign of a bigger appetite for risk, investors moved money out of U.S. debt, a haven during the stock market's volatile second half of 2011. The yield on the 10-year U.S. Treasury note increased to 1.98% from 1.90% Wednesday.

The market was led by industries that tend to perform best when the economy is getting stronger — consumer discretionary stocks, financials and industrial companies.

Of the 10 categories of stocks in the S&P 500, the only one that lost considerable ground was utilities — a safe play for investors during turbulent times and the best-performing category last year.

Cote says the market's gains could accelerate as investors begin to focus more on economic fundamentals instead of worries about their exposure to risk. While investors have been focusing on global concerns, especially the European debt crisis, the U.S. economy is showing many positive signs, including better-than-expected corporate earnings and improvements in manufacturing and consumer spending.

As global risk factors subside, Cote predicts that markets will see "a strong snap-back rally" as droves of investors finally trust that the markets are in a sustained upward trend.

And the economic news Thursday was good: The number of people seeking unemployment benefits plummeted last week to 352,000, the fewest since April 2008. The decline added to evidence that the job market is strengthening.

U.S. consumer prices were unchanged last month, a signal inflation is under control. In the housing market, a third straight increase in single-family home building in December was offset by a drop in apartment construction.

France and Spain also held successful bond auctions, easing concerns about the debt crisis in Europe. As global risk factors subside, Cote predicts that markets will see "a strong snap-back rally."

Utilities companies were among the few industries to fall, an indication that investors are becoming more comfortable owning riskier stocks. Utilities, which were the best-performing industry last year, tend to pay higher dividends and fluctuate less than companies like Caterpillar Inc. and FedEx Corp., whose fortunes are more closely tied to the economic cycle. Financial technology companies each rose 1%, the most of the 10 industries tracked by the S&P 500 index.

Solid earnings from Bank of America (BAC) and Morgan Stanley (MS) bolstered the prevailing optimism by reporting quarterly results that were better than analysts had expected. Bank of America returned to profit in the final three months of the year while Morgan Stanley's loss was less than forecast.

Investors also drove up shares of Renewable Energy Group Inc., the nation's largest producer of biodiesel, in its market debut. The stock rose 1% after pricing below what the Iowa company had initially expected. It was the first initial public offering of the year.

Trading was halted in shares of photography icon Eastman Kodak (EK) after the company filed for bankruptcy protection. The ailing company failed to find a buyer for its trove of 1,100 digital imaging patents.

Another set of successful bond auctions in Europe and renewed confidence in the continent's banks helped global markets rally Thursday as investors awaited developments in Greece's debt-reduction talks with private creditors.

European banks, including those considered particularly susceptible to a further outbreak of unease in Europe, such as France's Societe Generale and Italy's UniCredit, were further buoyed by the news that Germany's second-largest bank, Commerzbank AG, won't need help from shareholders or the government to boost its capital base.

The mood in financial markets has been fairly upbeat over the past couple of weeks and much of the optimism stems from a growing sense that Europe's debt crisis, though not solved by any means, has stabilized to an extent.

The ability of France and Spain to tap investors for money at what were largely affordable rates, in spite of last week's downgrade of their credit ratings by Standard & Poor's, reinforced that view.

"European developments are once again at the forefront, with today's European debt auctions proceeding smoothly," said Nick Bennenbroek, an analyst at Wells Fargo Bank.

The recent easing in concerns over Europe's debt crisis has helped the euro clamber off Monday's 17-month low against the dollar below $1.27. It's now trading at $1.29, up 0.2% on the day.

The recent optimism could all disappear though if Greece fails to successfully conclude its debt-reduction negotiations with the Institute of International Finance, which represents private sector bondholders. Talks are set to continue later, having restarted Wednesday.

Greece needs to clinch the agreement quickly to qualify for more bailout loans before it faces a major bond repayment on March 20. Without the money, the country would find it difficult to service its debts and be forced to default, potentially triggering more turmoil in global markets.

Last October, Greece's partners in the eurozone sanctioned a deal whereby Greece's creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country's debt burden. The deal with private investors aims to reduce Greece's debt by €100 billion ($127.9 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a €130 billion international bailout, the second one for Greece.

Hopes that a deal is being thrashed out has helped shore up sentiment in markets in recent days as has the IMF's revelation that it aims to raise up to $500 billion to meet its $1 trillion financing needs in coming years. The new money to be raised includes $200 billion that European countries recently agreed to hand the IMF.

Earlier in Asia, Japan's Nikkei 225 index rose 1% to close at 8,639.68. South Korea's Kospi rebounded 1.2% to 1,914.97 after a losing session Wednesday. Hong Kong's Hang Seng rose 1.3% at 19,942.95.

Oil prices tracked equities higher — benchmark oil for February delivery was up 93 cents to $101.52 per barrel in electronic trading on the New York Mercantile Exchange.

Among other U.S. stocks making large moves:

— eBay (EBAY) rose more than 3% after the online auction company beat analysts' earnings forecasts and provided a healthy outlook for the year.

— Southwest Airlines (LUV) rose more than 3% after it said its fourth-quarter net income and revenue jumped. Southwest said it expects strong revenue in the first quarter too, based on passenger-booking trends.

— Johnson Controls (JCI), an auto parts and building equipment maker, fell 9%. The Milwaukee-based company reported earnings and revenue that fell short of Wall Street's forecasts. It also cut its estimate for its fiscal year earnings, blaming weaker auto production in Europe, a lower euro and poor demand for batteries.

Stocks up on upbeat economic reports