Daily Stock Market Activity

Stocks rose on Friday in the United States and Europe after euro zone leaders reached agreement to tighten fiscal discipline to combat the sovereign debt crisis.

But while stock traders appeared to give a positive response to the announcement, at least for a day, the reaction in the bond market was tepid as many analysts weighed the longer-term prospects for the agreement and whether it would address the fundamental issues in the crisis.

Stocks on Wall Street reversed Thursday’s declines of more than 2 percentand finished the week in positive territory. At 4 p.m., the Dow Jones industrial average was up 1.5 percent, and the Standard Poor’s 500-stock index rose 1.7 percent. The Nasdaq composite index was 1.9 percent higher.

The Dow ended the week about 1.4 percent higher, and the S.P. 500 and the Nasdaq each climbed about 0.8 percent in the period.

Officials from the 17 European Union nations that use the euro agreed to sign a treaty that would require them to enforce stricter financial discipline; they also agreed on Friday to bolster their bailout funds.Guy LeBas,the chief fixed-income strategist at Janney Montgomery Scott, said that the accord simply addressed the underlying tensions among the European Union members rather than the fact that, for example, bond yields were too high in Italy for the country to fund itself. 

“My concern about the E.U. treaty pact is it does not provide much short-term relief for the markets,” he said. “In my view, it is more important to staunch the bleeding.”

Still, he added, the accord “provides a little bit of confidence that policy makers are addressing the issues facing the E.U. But it is not as if there is suddenly some great demand in Italian bonds” in the agreement’s wake.

On Thursday, the European Central Bank reiterated its opposition to increasing its purchases of euro zone government bonds, but cut its main interest rate target to 1 percent, down a quarter-point, to smooth credit market stress.

On Friday, the president of the E.C.B., Mario Draghi, gave his blessing to the euro zone’s arrangement, saying: “It is a very good outcome for euro area members and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro area countries.”

But Britain, concerned about the impact on the London financial center, refused to sign on to any treaty changes, meaning the deal’s legal basis is uncertain among the broader, 27-nation European Union. A few other nations also refrained from signing on at first.

The Euro Stoxx 50 index, a barometer of euro zone blue chips, gained 2.4 percent by the end of trading, while the FTSE 100 index in London was up 0.8 percent. The French CAC 40 index rose 2.4 percent and the German DAX was up nearly 2 percent.

On Friday, bond yields rose early for some euro zone nations that were seen as most vulnerable. Late in the day the trend reversed. Italy’s 10-year yield fell 13 basis points to 6.299 percent, while Spain’s fell 7 basis points to 5.680 percent. German 10-year bonds added 13 basis points to 2.142 percent. A basis point is one-hundredth of a percent.

United States 10-year Treasury notes rose 9 basis points to 2.061 percent, but one analyst, Anthony Valeri of LPL Financial, said that the bonds were responding to reports on improved  consumer sentiment released on Friday that exceeded forecasts.

 Quincy Krosby, a market strategist for Prudential Financial, agreed that the accord was a short-term remedy, considering the euro zone’s growth problems, that have placated the markets at least for one day.

“They have clearly bought time with the market reaction this morning,” she said. “The question is, as always, how much time.

“The long term is that it is clear that the evolution of the euro zone is ongoing and will be dictated by the economic prospects of the weaker members,” she said.

Analysts also noted that throughout the crisis, leaders and officials have offered a number of plans that have come and gone but failed to stabilize the markets or solve the root of the debt problems.

Article source: http://www.nytimes.com/2011/12/10/business/global/daily-stock-market-activity.html?partner=rss&emc=rss