Stocks & Bonds: Wall Street Follows Europe in Rebound

Wall Street picked up the momentum from higher markets in Europe and Asia. Bank stocks gained nearly 5 percent, a welcome reversal of a recent trend in the last few weeks, when they struggled amid uncertainty about euro zone debt; fluctuations in key economic data that reflect the challenges for housing and lending; and recently, a federal lawsuit that revisits problems with the way mortgages were handled.

Analysts said investors were encouraged by a ruling by the German Constitutional Court that rejected challenges that try to block German participation in bailouts for other countries in the euro area. Still, the court said future financial rescues would need the approval of Parliament’s budget committee.

The development, as well as European economic data released on Wednesday, went to the heart of a number of the issues facing investors, including how to gauge the euro zone’s approach to its debt crisis and the pace of global economic growth.

The three main indexes in the United States were all more than 2 percent higher. The Dow Jones industrial average was up 2.5 percent, or 275.56 points, to 11,414.86. The Standard Poor’s 500-stock index rose 2.9 percent, or 33.38 points, to 1,198.62, and the Nasdaq composite index was up 3.0 percent, or 75.11 points to 2,548.94.

“It is a bit of a relief rally,” said Paul Zemsky, the chief investment officer of multi-asset strategies for ING Investment Management.

Given the volatility in the markets recently, he and other analysts were cautious about the prospects for the broad gains to stick.

There was “a favorable outcome” to the German court ruling and the market was responding, Mr. Zemsky said, “but we need to see follow-through.”

In addition to the German court ruling, the Italian Senate approved austerity measures — after the markets closed — intended to fend off the country’s sovereign debt crisis.

“The Italian Senate passing the austerity bill is a boost and besides that I think it is going to help relieve some of the sovereign debt concerns, especially those that were intensifying in the past week or so regarding Italy and Spain,” said Peter Cardillo, the chief market economist for Rockwell Global Capital.

At the same time, some analysts said that the banking sector might have hit its lows.

In a research report, analysts from Deutsche Bank noted that bank stocks have declined by 24 percent since July 21, the date to which the most recent sell-off period is often traced, while the broader market as measured by the Standard Poor’s 500-stock index was down by 13 percent.

“While numerous macro concerns remain, we believe the sell-off is overdone” if gross domestic product growth is more than 1 percent, the analysts said about bank stocks over all.

Of the 10 most actively traded bank stocks on Wednesday, Regions Financial was up the most, more than 12 percent, at $4.37. The Deutsche Bank analysts upgraded the stock, which shed the most during the sell-off, as a buy after noting its management was cutting costs and for its outlook on the economy.

Bank of America rose more than 7 percent to $7.48. The bank shook up its top management team on Tuesday as it contended with a flagging share price and mounting legal liabilities. Citigroup was up 4.6 percent at $28.98.

Economists have been recalculating their outlook for the economy in the light of softer economic data and, to some extent, recent stock market volatility has increased the uncertainty for businesses. On Wednesday, a Federal Reserve survey of its 12 districts reported that many businesses in the United States had downgraded or become more cautious about their near-term outlooks.

Mr. Cardillo said the Fed’s description in the survey, known as the beige book, that economic activity continued to expand at a modest pace in some districts also helped trading.

“I think this rally probably will extend itself,” he said.

But the markets in the United States are also intertwined with global economies, and Mr. Zemsky noted that new data from Germany provided some support on Wednesday; the country’s industrial production was reported to have surged 4 percent in July, above expectations and reversing a decline in June, despite slack demand.

“It looks like the economies around the world are slowing, not stopping,” Mr. Zemsky said.

Corporate news propelled trading in critical sectors.

The technology sector rose solidly, led by Yahoo, which was up more than 5 percent at $13.61. The company’s chief executive, Carol A. Bartz, was fired Tuesday, ending a rocky two-year tenure in which she tried to revitalize the online media company.

The Treasury’s benchmark 10-year note fell 17/32 to 100 24/32 and the yield rose to 2.04 percent from 1.98 percent late Tuesday.

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