U.S. stocks were trading higher Monday, jumping back to earlier highs after Fed chief Ben Bernanke's testimony on signs of loosening in the credit crisis. Investors responded positively to some positive earnings reports and to a narrowing in credit market spreads, which suggests that the government's efforts to stabilize the banking system are starting to work.
European stocks were higher as banks lined up to tap state rescue packages to shore up their finances, part of measures to stem a global financial crisis.
Bonds were slightly lower, with yields moving a bit higher. The dollar index was lower. Gold futures were sharply higher. Oil futures were up on speculation OPEC will cut output at emergency meeting.
On Monday, the Dow Jones industrial average was trading 199.60 points, or 2.25%, to 9,051.82. The S&P 500 index was up 24.36 points, or 2.59%, at 964.91. The tech-heavy Nasdaq composite index rose 21.03 points, or 1.23%, to 1,732.32.
On the New York Stock Exchange, 22 stocks were trading higher for every seven that were in negative territory, while on the Nasdaq the ratio was 17-8 positive, amid moderate trading, according to S&P MarketScope.
Major European indexes were trading higher Monday. In London, the FTSE 100 index surged 5.41% to 4,282.67. In Paris, the CAC 40 bounced 3.56% to 3,448.51, while Germany's DAX index rose 1.12% to 4,835.01.
In Asia, Japan's Nikkei 225 jumped 3.59% to end at 9,005.59, while Hong Kong's Hang Seng index surged 5.28% to close at 15,323.01.
President Bush, looking for answers to an economic emergency with just three months left in office will host an international summit to discuss ways to fix the world financial system but warned against reforms that threaten capitalism. "We will work to strengthen and modernize our nations' financial systems so we can help ensure that this crisis doesn't happen again," Bush said at the Camp David presidential retreat, according to an Associated Press dispatch. Bush, meeting with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso, did not announce a date or site for the summit. But Sarkozy suggested it be held in the shadow of Wall Street before the end of November.
Governments continued to announce measures to shore up financial institutions. Germany's cabinet approved strict conditions for banks that make use of its €500 billion rescue package, including limits on managers' salaries, bonuses and severance. "The criteria for appropriate (remuneration) are based on responsibilities and personal performance, business conditions and the success and outlook of the company compared to others in its field," the provisions agreed by cabinet stated, according to a Reuters dispatch.
Bavaria's public sector bank, BayernLB, was ready to ask for funds, Bavaria's finance minister said. Commerzbank said it would take a close look at using the funds. Societe Generale led a steep fall by France's top three banks as concern heightened they may be next in line for state funds. On Sunday, the Dutch government agreed a €10 billion cash injection into financial group ING (ING), powering its shares higher by almost 23%. ING said it had agreed to sell its Taiwan Life insurance unit to Fubon Financial for $600 million, increasing its capital in a deal analysts said would benefit shareholders. In Sweden, the government outlined a plan worth more than 1.5 trillion crowns ($271.5 billion) that would include credit guarantees and a bail-out fund. "The government is proposing powerful measures to ease the effects on Swedish households and companies of the financial turbulence," said Financial Markets Minister Mats Odell.
Traders listened to Bernanke's testimony on the U.S. economic recovery to the House Budget Committee. Saying that uncertainties around the economic picture are unusually large, the Fed chief said it would be appropriate for Congress to pass a second fiscal package to stimulate growth. While recovery from what he expects to be a protracted economic slowdown will depend on how quickly confidence returns to the financial system, he said he was confident that the measures the government is taking would help restore people's trust in the financial system.
Also on the Fedspeak calendar Monday: Atlanta Fed President Dennis Lockhart on the U.S. economic outlook and Fed Gov. Randall Kroszner on risk management.
Offering more detail about the Treasury's plan to inject $250 billion into banks, Secretary Henry Paulson said the the new capital should be deployed, not hoarded, though the government hasn't defined the type of lending to avoid forcing bad lending decisions. Paulson also said he expects lenders to step up efforts to aid homeowners in avoiding foreclosures. So far interest has been pretty broad in the program and he emphasized that these are investments, not expenditures, which should ultimately not come at a cost to taxpayers.
In economic news Monday, U.S. leading indicators rebounded by a better than expected 0.3% in September, from a revised 0.9% decline in August (-0.5% previously). That left the 6-month annualized rate of change at -2.5% from -2.1% previously. Positive contributions from money supply, consumer expectations, and the yield curve more than offset negative contributions from building permits, initial jobless claims, stocks, and the factory workweek, notes Action Economics
