US stocks closed at their highest level in 10 weeks on Monday and the S&P 500 pierced key technical levels as a weaker US dollar lifted the energy and raw materials sectors.
Strong results in Europe from BNP Paribas SA and HSBC Plc added to the upbeat tone and lifted US bank stocks. JPMorgan Chase & Co rose 3.4 per cent to $US41.64 and the KBW Bank index gained 3.2 per cent.
The falling greenback set off a 3 per cent jump in crude prices, which, coupled with BP's attempt to permanently cap its Macondo well in the Gulf of Mexico, sent energy shares soaring.
What you need to know
- The SPI was 66 points higher at 4571
- The Australian dollar was buying 91.34 US cents
- The Reuters Jefferies CRB Index rose 0.91%
Macondo-linked companies rallied, with Transocean up 9.6 per cent to $US50.68. The Philadelphia exchange oil services sector index climbed 4.5 per cent.
"Oil service and oil companies got overdone on the downside because of the problem in the Gulf, and now we are having a natural reaction back up," said Carl Birkelbach, chief executive of Birkelbach Investment Securities in Chicago.
Crude futures settled above $81 per barrel for the first time since early May. The S&P energy sector jumped 3.6 per cent.
Raw materials also rose and the Reuters/Jefferies CRB commodity index hit a three-month high. Dow component and aluminum company Alcoa Inc advanced 4.8 per cent to $US11.71.
The 90-day correlation between the CRB and S&P 500 is currently .85, up dramatically from the 0.33 range in early May. Many investors reason rising raw material prices bodes well for global demand prospects.
The Dow Jones industrial average gained 208.44 points, or 1.99 per cent, to 10,674.38. The Standard & Poor's 500 Index advanced 24.26 points, or 2.20 per cent, to 1125.86. The Nasdaq Composite Index rose 40.66 points, or 1.80 per cent, to 2295.36.
The S&P 500 closed the session above its 200-day moving average and the 1121 level, the midpoint of the slide from its historic high reached in October 2007 and the 12-year low hit in March 2009, which has been viewed as a key resistance level.
The benchmark has not been able to close above this 50 percent retracement since mid-May.
"The more times a level is tested, it heightens the significance of the move when you finally do break through," said Richard Ross, global technical strategist at Auerbach Grayson in New York.
The CBOE Volatility Index fell below its 200-day moving average, suggesting some of the near-term fear on the market has diminished. But options activity on VIX futures show that traders continue to anticipate higher volatility.
Since the beginning of May, the VIX has closed below its 200-day MA only twice, both times occurring last week.
"Even though VIX futures contracts were down, they still carry a premium to spot VIX, indicating traders expect significantly higher volatility for the rest of 2010," said OptionMonster analyst Chris McKhann in Chicago.
Further boosting stocks, the Institute for Supply Management said the US manufacturing sector grew at a faster rate than expected in July. The government reported construction spending unexpectedly rose in June.
Reuters