NEW YORK — US stocks surged on Friday to close out a sour quarter on a high note as investors cheered an agreement by European leaders to stabilise the region's banks, a pact that helped remove some of the uncertainty that has plagued markets. The broad rally was the S&P 500's best day since Dec. 20 and helped the benchmark index trim its quarterly loss to 3.3 per cent.
The decline marked the S&P 500's first down quarter in the last three after tumultuous Greek elections and concerns about the solvency of Spanish banks roiled financial markets around the world. "You are going to be see a nice summer rally out of this. Think of where this market would be if it hadn't been for the euro crisis," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
"The market is now looking at least six to eight months forward on what is the economic landscape going to look like in an improving European growth environment." Euro zone leaders agreed that countries would be able to recapitalise banks directly without increasing a country's budget deficit. Such a move creates a catalyst to snap the cycle that markets fell into when policymakers bailed out Spanish banks with $125 billion, but ended up further ex acerbating Spain's sovereign debt problem and shunting existing bondholders down the food chain.
Among Wall Street's few decliners in Friday's session, Ford Motor Co fell 5 per cent to $9.59 after the automaker became the latest large multinational to warn on weakness stemming from Europe, joining the likes of Procter & Gamble Co and Hewlett-Packard.
Sectors sensitive to euro zone developments ranked among the best performers. US bank stocks were among the market leaders as the KBW bank index jumped 2.7 per cent. Shares of Bank of America Corp rose 5.7 per cent to $8.18. The PHLX Europe sector index climbed 4 per cent.
Investors also cited end-of-quarter portfolio adjustments as helping to fuel Friday's gains, in addition to the EU agreement.
The Dow Jones industrial average jumped 277.83 points, or 2.20 per cent, to 12,880.09 at the close. The Standard & Poor's 500 Index rose 33.12 points, or 2.49 per cent, to 1,362.16. The Nasdaq Composite Index climbed 85.56 points, or 3.00 per cent, to 2,935.05. For the week, the Dow gained 1.9 per cent, the S&P 500 rose 2 per cent and the Nasdaq advanced 1.5 per cent.
For the month of June, the Dow rose 3.9 per cent, the S&P climbed 4 per cent and the Nasdaq added 3.8 per cent.
But for the second quarter, the Dow fell 2.5 per cent, the S&P 500 lost 3.3 per cent and the Nasdaq dropped 5.1 per cent.
Italian and Spanish borrowing costs fell, though they remained not far from recent highs. Investors' expectations for any action during a two-day European Union summit had dissipated, giving markets room to bounce on the unexpected good news.
Brent and US crude oil prices soared on the back of the EU agreement. Energy futures prices also got a boost from the euro's jump of almost 2 per cent against the US dollar. The S&P energy sector index added 3.1 per cent.
The EU summit news overshadowed a batch of mixed US data. US consumer spending stalled in May as auto purchases flagged while consumer sentiment hit a six-month low in June in the latest signs of trouble for the economy.
Although another report on Friday showed manufacturing activity in the Midwest picked up this month, factories saw a modest decline in new orders.
Attention in Europe now turns to next week's European Central Bank meeting. The consensus is that the bank will cut its main refinancing rate by 25 basis points to 0.75 per cent and may trim the deposit rate — the rate it pays banks for parking money with it — by 25 basis points to 0 per cent. — Reuters
