(PCE) Stock Market News for September 30, 2011

On Thursday, the roller-coaster ride of the markets ended with two benchmarks gaining and the other finishing in the red. A rally in the late session helped the blue-chip index beef up its gains, while sentiment got a boost from encouraging economic data and Germany’s approving greater funds for the euro-zone bailout.

The Dow Jones Industrial Average (DJIA) gained 1.3% to settle at 11,153.98. The Standard & Poor 500 (S&P 500) was up 0.8% to close at 1,160.40. However, the tech-laden Nasdaq Composite Index missed out on a seat in the green, declining 0.4% to finish the day at 2,480.76. The fear-gauge CBOE Volatility Index (VIX) shed some points to hover slightly over 39. It was a busy day of trading on the Street with consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq, coming in at 8.62 billion, well above this year’s average.

Deputies from Germany supported Chancellor Angela Merkel to vote in favor of a larger euro-zone bailout fund yesterday. This move, which gives the European rescue fund more powers to fight the region’s debt crisis also helped calm the nerves of global and domestic investors alike. This is indeed a welcome move which temporarily alleviated fears of Greece succumbing to the debt crisis. The Bundestag, or the lower house in the German legislature, voted to nearly double Germany’s guarantees to the European Financial Stability Facility to €211 billion, or $373 billion. However, it is left to the upper house to support this stance. On Wednesday, Finland’s parliament had approved the proposal, reducing some of the uncertainty over the debt crisis issue which has been dogging financial markets since late July.

The move would help the region’s banks recapitalize, and has provided optimism to investors that US banks would not be battered by European turmoil. Thus, the banking sector enjoyed the largest gains yesterday with Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Citigroup, Inc. (NYSE:C), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), Barclays PLC (NYSE:BCS) jumping 3.1%, 3.0%, 3.9%, 3.7%, 6.6% and 4.4%, respectively.

On the domestic font, investors looked uncertain initially with their interpretation of the economic reports. However, better-than-expected readings of the data ultimately rang in cheer and lifted the benchmarks.

The Commerce Department reported that initial claims for the last week dipped to its lowest since April 2, 2011. According to the U.S. Department of Labor : “In the week ending September 24, the advance figure for seasonally adjusted initial claims was 391,000, a decrease of 37,000 from the previous week’s revised figure of 428,000. The 4-week moving average was 417,000, a decrease of 5,250 from the previous week’s revised average of 422,250”. This was definitely better than the consensus projection that the reading would come in at 420, 000.

Adding to the cheer, a separate report from the Commerce Department showed an improvement in the nation’s GDP growth. The “third” estimate released by the Bureau of Economic Analysis said that second quarter 2011 real gross domestic product increased at an annual rate of 1.3%. The report noted: “The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures (PCE), exports, and federal government spending that were partly offset by negative contributions from state and local government spending and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased”.

However, housing data showed a decline in pending home sales. According to a report from the National Association of Realtors: “The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.2 percent to 88.6 in August from 89.7 in July but is 7.7 percent above August 2010 when it stood at 82.3. The data reflects contracts but not closings”.

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