Saturday, October 29, 2011

European debt deal lifts Dow by almost 340 points

NEW YORK — An agreement to contain the European debt crisis electrified the stock market Thursday, driving the Dow Jones industrial average up nearly 340 points and putting the Standard & Poor’s 500 index on track for its best month since 1974.

Investors were relieved after European leaders crafted a deal to slash Greece’s debt load and prevent the crisis there from engulfing larger countries like Italy. The package is aimed at preventing another financial disaster like the one that happened in September 2008 after the collapse of Lehman Brothers.

But some analysts cautioned that Europe’s problems remain unsolved.

“The market keeps on thinking that it’s put Europe’s problems to bed, but it’s like putting a 3-year-old to bed: You might put it there, but it won’t stay there,” said David Kelly, chief market strategist at J.P. Morgan Funds.

Kelly said Europe’s debt problems will remain an issue until the economies of struggling nations like Greece and Portugal grow again.

Still, the Dow Jones industrial average soared 339.51 points, or 2.9 percent, to close at 12,208.55. That was its largest jump since Aug. 11, when it rose 423 points.

All 30 stocks in the Dow rose, led by Bank of America with a9.6 percent gain. It was the first time the Dow closed above 12,000 since Aug. 1.

“This seems to set aside the worries that there would be a massive contagion over there that would have brought everything down with it,” said Mark Lamkin, head of Lamkin Wealth Management.

Even with Thursday’s gains, the Dow remains 4.7 percent below the high for the year it reached on April 29. The Dow has fallen every month since then due to a combination of a slowdown in the U.S. economy, a worldwide parts shortage after the earthquake and tsunami in Japan, and concerns about the European debt crisis.

The Dow is now at approximately the same level it traded at on July 28.

But anticipation of a solution to Europe’s debt problems and signs that the U.S. economy is not in another recession have lifted stocks higher throughout October.

Middle Tenn. shows signs of stability

In the Nashville area, there were some modest signs of economic stability as well. The Middle Tennessee unemployment rate for 13 counties in the Nashville-Murfreesboro region held steady for September at 8.5 percent, the same rate as August’s revised data, the state Department of Labor and Workforce Development said. Davidson County saw its jobless rate ease lower by 0.2 percentage points compared with a year earlier.

The Dow is up 11.9 percent for the month so far. With only two full days of trading left in October, the Dow could have its biggest monthly gain since January 1987.

The S&P 500 rose 3.7 percent, to 1,284.59. That index is up 13.5 percent for the month, its best performance since a 16.3 percent gain in October 1974.

Small-company stocks rose more than the broader market. The Russell 2000 index jumped 5.3 percent.

European leaders still have to finalize the details of their latest plan. French President Nicolas Sarkozy spoke with Chinese President Hu Jintao amid hopes that countries with lots of cash, like China, can contribute to the European rescue.

Past attempts to contain Europe’s two-year debt crisis have proved insufficient. Greece has been surviving on rescue loans since May 2010. In July, creditors agreed to take some losses on their Greek bonds, but that wasn’t enough to fix the problem.

Worries about Europe’s debt crisis and a weak U.S. economy dragged the S&P 500 down19.4 percent between April 29 and Oct. 3. That put it on the cusp of what’s called a bear market, which is a 20 percent decline.

Since then, there have been a number of more encouraging signs in the U.S. economy. Despite the jitters over Europe, many large American companies have been reporting strong profit growth in the third quarter, including Dow Chemical.