By Stephen Bernard
Stocks rose sharply Tuesday following upbeat earnings reports and a fresh round of corporate deal making.
European markets also rose following new plans by European Union leaders to push Greece to get its budget under control. European leaders on Monday said Greece will have another month to come up with a plan to cut its deficit.
Stronger-than-expected profit at the major European bank Barclays also brought relief to the market. European banks have been slower to recover than their US counterparts, so investors saw the bounce back at Barclays as an encouraging sign.
Kraft Foods Inc. and apparel retailer Abercrombie & Fitch reported earnings that beat expectations, while drug maker Merck & Co. said profits jumped after the company bought its long-time partner Schering-Plough Corp.
US earnings reports over the past month have mostly come in better than expected, but problems in the global economy have pushed the market lower in recent weeks. However with the Greek debt crisis now starting to ease, investors' focus may return to the US economy.
"Earnings have been good, but pushed to the back seat," said Alan B. Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio. The strong reports Tuesday "superseded some of these worries."
Investors are gradually becoming more comfortable with the global economic issues that have come up, Lancz said. As long as no more bad surprises pop up, investors will likely return their focus to earnings and economic growth, he said.
Meanwhile a bold acquisition move by the nation's largest mall owner raised hopes that businesses are feeling more confident about the economy.
Simon Property Group has offered to acquire its ailing rival, General Growth Properties, for US$10 billion. General Growth, the No. 2 mall operator, filed for bankruptcy protection last year.
In afternoon trading, the Dow Jones industrial average rose 123.65, or 1.2 percent, to 10,222.79. The Standard & Poor's 500 index rose 14.77, or 1.5 percent, to 1,090.28, while the Nasdaq composite index rose 22.59, or 1 percent, to 2,206.12.
Nearly four stocks rose for every one that fell on the New York Stock Exchange, where volume came to 521.2 million shares, compared with 571.6 million shares traded at the same point Friday.
Energy and materials stocks rallied as commodities prices rose. Gold and oil both rose sharply.
JPMorgan Chase & Co. also announced it was buying RBS Sempra Commodities' global oil, global metals and European power and gas assets in a deal worth about US$1.7 billion. The move nearly doubles JPMorgan's corporate client base for commodities.
Economic reports throughout the holiday-shortened week will also provide insight into the economy. The market was closed Monday for President's Day.
A report on manufacturing in the New York area was stronger than expected. The Empire State manufacturing index rose to 24.91 this month, compared with a forecast of 18, according to economists polled by Thomson Reuters. The index was 15.92 last month.
The industrial sector has shown growth in recent months, adding to hopes that the economy is on a path to a sustained recovery.
Reports on housing starts, jobless claims and inflation are all due out later this week.
Merck was one of the biggest gainers of the 30 stocks that make up the Dow Jones industrial average, rising 73 cents, or 2 percent, to US$37.65. In addition to its earnings results Merck also announced details of the combined company's restructuring plans, the first phase of which expected to bring annual savings of up to US$3 billion in 2012.
Barclays' New York-listed shares jumped US$2.17, or 13 percent, to US$18.85.
Simon Property rose US$2.76 or 3.8 percent to US$74.76 after announcing its hostile offer for General Growth. General Growth's best known centres include the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.
Simon Property's bold move "sends a signal that the economy might be doing better," said Giri Cherukuri, a portfolio manager and head trader at OakBrook Investments in Lisle, Ill.
The Simon Property deal, in particular, is positive because it shows mall operators are upbeat about the prospects for growth in the retail industry and employment. High unemployment is one of the biggest obstacles to a sustainable recovery.
Investors have sold off stocks in recent weeks, in part, because of concerns that a 10-month rally that started last March might have pushed prices too high.
Bond prices were mixed a report showed foreign demand for US government bonds fell by the largest amount on record in December. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.68 percent from 3.70 percent late Friday.
The dollar fell.
The Russell 2000 index of smaller companies rose 5.81, or 1 percent, to 616.53.
Overseas, Britain's FTSE 100 rose 1.5 percent, Germany's DAX index gained 1.5 percent, and France's CAC-40 rose 1.7 percent. Japan's Nikkei stock average rose 0.2 percent.
AP