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Stocks surge as Italy, Greece allay debt fears

By Matthew Craft

Associated Press

Published: Friday, Nov. 11 2011 7:19 p.m. MST

The prospect of new governments in Greece and Italy helped support market sentiment Friday.

Associated Press

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NEW YORK — Stocks surged Friday, erasing their losses for the week, after Italy and Greece moved closer to getting their financial crises under control. The Dow Jones industrial average jumped back above 12,000.

Italy's benchmark stock index leapt 3.7 percent and its borrowing costs plunged after the country's Senate passed a crucial austerity budget demanded by the European Union. Other European stock markets and the euro also pushed higher as investors became more confident that Italy would avoid a fiscal disaster.

The passage clears the way for Italian Premier Silvio Berlusconi to step down. Berlusconi was widely considered an obstacle to serious economic reforms. The yield on Italy's benchmark two-year bond dropped 0.43 percentage point to 5.69 percent. That's a sign bond investors think Italy will succeed in managing its massive debt load. On Wednesday the yield soared as high as 7.13 percent.

The Dow Jones industrial average jumped 259.89 points, or 2.2 percent, to 12,153.68. It closed below 12,000 the previous two days. Friday's rally pushed the Dow up 1.4 percent for the week.

Together with a 112-point gain the day before, the Dow has now made up most of the 389-point plunge it took on Wednesday. That sell-off was triggered by the spike in Italy's borrowing costs and a breakdown in talks to name a new prime minister in Greece.

In Greece, too, there was good news for the markets Friday. Lucas Papademos, a former central banker, was sworn in as interim prime minister. Lucas Papademos took over a coalition government after a two-week political crisis that jeopardized the country's ability to continue receiving emergency loans.

Plenty of uncertainty still hangs over financial markets. Brian Gendreau, senior investment strategist at Cetera Financial Group, noted that the VIX index is still above 30, a sign that traders expect stocks to stay volatile.

Gendreau expects the S&P 500 to trade in a range of 1,200 to 1,275 until Europe's debt crisis gets closer to resolution and the U.S. Congress signs off on a larger debt-cutting plan. A supercommittee in Congress has until Nov. 23 to agree on a deficit-reduction package of at least $1.2 trillion over a decade.

"We still don't have a real resolution on either side of the Atlantic," Gendreau said.

The S&P 500 rose 24.16, or 1.9 percent, to 1,263.85. Only 13 of the 500 stocks in the S&P fell. Technology and materials companies had the biggest gains. The S&P 500 gained 0.8 percent for the week.

Walt Disney Co. jumped 6 percent. The company reported record annual profits and revenue after the market closed Thursday, thanks to stronger advertising sales at ESPN and the Disney Channel.

The Nasdaq composite rose 53.60, or 2 percent, to 2,678.75. The index edged down 0.3 percent for the week.

In other corporate news:

D.R. Horton Inc. returned to a quarterly profit as more people bought houses. But the builder's earnings and revenue fell below what analysts had expected. D.R. Horton's stock dropped 1.7 percent.

Nordstrom Inc. also reported stronger a quarterly profit late Thursday. But the retailer lowered its full-year profit outlook below what analysts expected. Its stock fell 0.3 percent.

Viacom Inc., the parent of Nickelodeon, said it will move its stock listing to the Nasdaq Stock Market from the New York Stock Exchange next month because it's more "cost effective." The company's class B stock rose 3 percent.

E-Trade Financial Corp. sank 4.1 percent. The online broker said late Thursday that it had decided against putting itself up for sale. E-Trade's largest shareholder, the hedge fund Citadel Advisors, had been pushing for a sale.

U.S. bond trading was closed for Veterans Day.

Five stocks rose for every one that fell on the New York Stock Exchange. Volume was light at 3.3 billion shares.

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