NEW YORK-An agreement to contain the European debt crisis electrified the stock market yesterday, 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 remained unsolved. Experts think Europe's debt problems will remain an issue until the economies of struggling nations like Greece and Portugal grow again.
Commodities and Treasury yields soared as investors took on more risk. The euro rose sharply against the dollar. Stronger US economic growth and corporate earnings also contributed to the surge. The government reported that the American economy grew at a 2.5 per cent annual rate from July through September on stronger consumer spending and business investment. That was nearly double the 1.3 per cent growth in the previous quarter. Banks agreed to take 50 per cent losses on the Greek bonds they hold. Europe will also strengthen a financial rescue fund to protect the region's banks and other struggling European countries such as Italy and Portugal. The Dow Jones industrial average soared 339.51 points, or 2.9 per cent, to 12,208.55. That was its largest jump since August 11, when it rose 423.
All 30 stocks in the Dow rose, led by Bank of America Corp with a 9.6 per cent gain. It was the first time the Dow closed above 12,000 since August 1. Even with yesterday's gains, the Dow remains 4.7 per cent below the high for the year it reached April 29. The Dow has fallen every month since then due to a combination of a slowdown in the US 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. Stocks fell for much of August in the wake of a last-minute deal to prevent the US government from defaulting on its debt.
But anticipations of a solution to Europe's debt problems and signs that the US economy is not in another recession have lifted stocks higher throughout October. The Dow is up 11.9 per cent for the month so far. With only two full days of trading left in the month, the Dow could have its biggest monthly gain since January 1987. The S&P 500 rose 42.59, or 3.7 per cent, to 1,284.59. Those gains turned the S&P positive for the year for the first time since August 3, just before the US government's debt was downgraded. The index is up 13.5 per cent for the month, its best performance since a 16.3 per cent gain in October 1974. The Nasdaq composite leaped up 87.96, or 3.3 per cent, to 2,738.63. The euro rose sharply, to US$1.42, as confidence in Europe's financial system grew. European stock indexes also soared. France's CAC-40 rose 6.3 per cent and Germany's DAX jumped 6.1 per cent.
Investors sold US Treasury notes and bonds, an indication they were moving away from safer investments.
Nine stocks rose for every one that fell on the New York Stock Exchange. Volume was heavy at 6.5 billion shares. (AP)
