US stocks surged on hopes that the country’s top banks had weathered the worst of the credit market storm. The rally extended beyond the financial sector after a better than expected manufacturing report offered respite from an avalanche of ominous economic news.
The Dow jumped 391.47 points, or 3.19 per cent to 12654.36, while the broader S&P 500 gained 47.48, or 3.59 per cent to 1370.18. Meanwhile, the Nasdaq picked up 83.65, or 3.67 per cent to 2362.75.
The rally saw stocks post their best start to a second quarter since 1938.
News that Lehman Brothers had raised US$4 billion from a stock sale, a move that helped quash rumours that it is short of capital, got traders off to a positive start.
Analysts said the deal helps Lehman reduce its leverage at a time when the firm may have trouble selling assets such as mortgage bonds because demand had dried up.
The offer was three times over subscribed and many took this as a positive sign because the bank’s ability to raise capital reduced the prospect of a collapse. Lehman shares jumped 17.8 per cent on the news.
Influential Oppenheimer & Co analyst, Meredith Whitney, said Lehman Brothers was selling shares ahead of what would likely be a “barn rush” of firms trying to raise capital this year.
Thornburg Mortgage raised US$1.35 billion in an offering. Its stock rose 19.1 per cent.
Investors took the news as the light at the end of the tunnel, hoping financials would be able to weather any first quarter earnings disappointments and move beyond the credit crisis.
The market even embraced news of write downs at Deutsche Bank and UBS, arguing that many of the toxic assets that had been buried in companies’ balance sheets were beginning to emerge from the woodwork and reduce uncertainty.
UBS gained 14.6 per cent in US trade, while Deutsche Bank enjoyed a more modest 4.2 per cent rally.
Other large banks also rallied. Citigroup added nearly 11.3 per cent, Bank of America rose 7.8 per cent, and JPMorgan Chase gained 9.4 per cent. Bear Stearns, which was only recently on the brink of collapse, ended the day 3.4 per cent higher.
Industrials also contributed to the day's rally after the Institute for Supply Management's manufacturing index contracted less than forecast.
The ISM's manufacturing index rose to 48.6 in March, from 48.3 in February, pleasantly surprising economists who expected it to fall. However, it is worth noting that a reading below 50 points still indicates weakness.
All thirty components of the Dow Jones Industrial Average gained. General Electric added 3.8 per cent and Caterpillar closed 2.2 per cent higher.
Automaker also managed to shrug off bad news, with General Motors picking up 5.8 per cent and Ford gaining 4.4 per cent after traders shrugged off reports that showed auto sales continued to decline in March. GM’s sales plunged 19 per cent while Ford’s sales were down 14 per cent.
The new economy also contributed to the day’s rally, with tech stocks strong for the second straight day. Intel picked up 3.7 per cent, Oracle gained 4.4 per cent, Cisco Systems was 3.7 per cent dearer and Ebay closed 5.3 per cent higher.
Also on the upside, Dell rose 2 per cent after the computer maker said it may close one of its manufacturing plants and sell its finance business as it attempted to cut US$3 billion in expenses over the next three years
However, Yahoo! fell 1.5 per cent after The Wall Street Journal reported that Microsoft had no plans to increase its US$44.6 billion bid for the company. Microsoft added nearly 4 per cent.
NYMEX crude for May delivery fell US60c to settle at US$100.98 a barrel. Meanwhile, COMEX gold for April delivery fell US$33.30 to settle at US$882.90 an ounce.
UK markets
British shares advanced on April Fools Day, entering the second quarter in a buoyant mood. Financials jumped on hopes that recent writedowns signalled that the worst was over for the sector with many investors hoping the joy would continue.
The benchmark FTSE 100 added 150.50, or 2.64 per cent to 5852.60.
The banking sector led the market higher as short sellers bought back positions following news that UBS and Lehman Brothers were raising funds. HBOS shot up 8 per cent, while Royal Bank of Scotland rose 7 per cent and Barclays added 6 per cent.
Alliance & Leicester put on 6.6 per cent and Friends Provident rose 7.4 per cent as traders took the view that shareholders would put pressure on the board to talk to JC Flowers, the private equity group that on Monday made an indicative bid for the insurer.
Elsewhere, AstraZeneca rose 6.9 per cent and rival GlaxoSmithKline tacked on 4.6 per cent. Astra was again in demand as traders took the view that sales of its drug Crestor could benefit from criticism of rival cholesterol treatments.
Yesterday, shares in the company rose 2 per cent after it said it had ended a trial of Crestor early due to a positive result.
Retail stocks also climbed with Kingfisher up 7.8 per cent, Next adding 6.8 per cent and Home Retail Group 7.5 per cent.
Meanwhile, mining stocks underperformed as investors sold out of the sector and underlying commodities as the dollar rallied. Lonmin was the biggest loser, down 2.4 per cent, followed by Xstrata and Antofagasta, which fell 1.5 per cent each.
Bucking the trend, Aussie mega miner BHP Billiton was up 2.3 per cent, while rival Rio Tinto was steady.
European markets
European shares surged on Tuesday, reaching their highest close in more than a month. Banking shares stole the show as investors pinned their hopes on the belief that the worst of a string of asset writedowns could be over.
France’s CAC 40 jumped 158.93, or 3.38 per cent to 4866, while Germany’s DAX 30 climbed 185.36, or 2.84 per cent to 6720.33.
UBS led the European banking sector higher after announcing a new rescue package and US$19 billion in writedowns. The Swiss bank ended the day 12.3 per cent higher.
News from UBS gave a boost to local rival Credit Suisse, which rose 7.9 per cent and lifted French peers Societe Generale and BNP Paribas 9.5 per cent and 6 per cent respectively.
Banks also shrugged off the news of a surprise 2.5 billion euro writedown from Deutsche Bank, which opened slightly lower before gaining momentum with the rest of the sector to close up 3.9 per cent. Commerzbank rose 7.5 per cent.
Insurance companies also performed well. Aegon rose 6.8 per cent and ING jumped 5.1 per cent. France’s CNP added 5.6 per cent and domestic peer AXA climbed 6.7 per cent. In Germany Munich Re gained 4 per cent, Allianz jumped 5.4 per cent and Swiss Re surged 7.1 per cent.
Meanwhile, tech shares were among the biggest gainers, with Nokia up 7.3 per cent and rival Ericsson increasing 4.6 per cent.
Infineon rose 9.4 per cent and STMicroelectronics gained 5.5 per cent on hopes the industry may be emerging from a severe slump after Samsung said it was considering raising prices.
Japanese markets
Japanese stocks rose 1 per cent on Tuesday, though early gains were pared. Investors grew increasingly wary ahead of key economic data later this week, but exporters came back from the previous day’s losses.
The Nikkei 225 rose 130.88, or 1.04 per cent to 12656.42.
Video game maker Konami Corp surged 5.9 per cent to become the biggest contributor to the Nikkei.
Canon added 2.4 per cent, while Sony rose 2.3 per cent and Honda Motor edged up by 1.8 per cent.
Banks, battered by selling on Monday, regained some ground, with top lender Mitsubishi UFJ Financial Group rising 1.9 per cent and Sumitomo Mitsui Financial Group up 3.2 per cent.
Elsewhere, Takeda Pharmaceutical rose 3.2 per cent after a study showed that the drug maker's diabetes pill, Actos, prevented the build-up of fatty deposits in heart arteries for patients with type 2 diabetes.
Hong Kong markets
Hong Kong ended higher, buoyed by property plays, but trade was volatile due to a slide in China's main stock index in Shanghai. The US$19 billion in new writedowns for Swiss bank UBS impacted on the market, which see-sawed in and out of positive territory.
The Hang Seng gained 288.26, or 1.26 per cent to 23137.46, ending its worst quarter in six years.
Property stocks rebounded after lagging recently due to investor concerns that further interest rate cuts may not be forthcoming.
Sun Hung Kai Properties, Asia's top developer by market value, climbed nearly 2 per cent, while billionaire Li Ka-shing's property flagship Cheung Kong gained 2.5 per cent. Hang Lung rose 1.3 per cent.
Meanwhile, a pullback in crude oil prices bolstered airline shares, as well as Chinese refiners squeezed by state-controlled gasoline and diesel prices.
Sinopec Corp ended up 2.4 per cent. Air China gained nearly 4 per cent, while China Southern jumped 1.3 per cent. Hong Kong's dominant carrier Cathay Pacific climbed nearly 2 per cent.
The Overnight MarketWatch report is provided by SHAW Stockbroking's egoli - simple but informative market news for the everyday investor.
egoli news: A view of the Australian market, from your perspective, as it happens. For more information go to http://www.egoli.com.au/egoli/egolihome.asp