Stocks, U.S. Futures Gain as Manufacturing Expands; Dollar Drops

January 03, 2012, 7:38 AM EST By Stephen Kirkland and Lynn Thomasson

Jan. 3 (Bloomberg) -- Stocks rose, driving the MSCI All- Country World Index to a four-week high, while U.S. futures and commodities climbed on signs of increased manufacturing output. The dollar weakened and U.S. Treasuries fell.

The MSCI gauge advanced 0.7 percent at 7:10 a.m. in New York, on course for the highest close since Dec. 7. The Stoxx Europe 600 Index added 0.7 percent. Standard & Poor’s 500 Index futures rallied 1.8 percent. The Dollar Index fell 0.8 percent, while the 10-year Treasury yield increased six basis points to 1.94 percent. The yield on similar-maturity French debt jumped four basis points. Oil rose above $100 a barrel and copper gained for a second day.

U.S. manufacturing probably expanded last month at the fastest pace since June, economists in a Bloomberg survey said before a report today, and the Federal Reserve is scheduled to release minutes from its December meeting. Factory output in Australia grew for the first time in six months after reports in the past two days showed a pickup in Chinese and Indian manufacturing, providing evidence that some economies are withstanding Europe’s debt crisis.

“While the reasons to be gloomy are legion and unchanged, there is no new negative news, and lots and lots of cash washing around the system,” Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said in a report today. “All of which makes for too much cash sitting idly by and a decent risk rally.”

Two-Month High

The Stoxx 600 climbed to the highest level in two months as the U.K.’s FTSE 100 Index and the Swiss Market Index, which were closed yesterday for a holiday, led gains. The Euro Stoxx 50 Index of the biggest euro-region companies added less than 0.1 percent.

Rio Tinto Group led a rally in mining companies, gaining 5.4 percent. Afren Plc jumped 11 percent as the U.K. energy explorer focused on Africa said production topped its forecasts.

The MSCI world index sank 9.4 percent last year, the most since 2008, as Europe’s debt crisis hurt global growth. The S&P 500 Index slipped less than 0.1 percent in the period.

The Institute for Supply Management’s factory index rose to 53.4 from 52.7 in November, according to the median projection of 63 economists surveyed by Bloomberg. Fifty is the dividing line between growth and contraction. Construction spending increased for a fourth straight month in November, another report may show.

The dollar weakened 0.9 percent to $1.3042 per euro, which appreciated 0.6 percent against the yen after falling to an 11- year low yesterday. The yen depreciated against 14 of its 16 most-traded peers monitored by Bloomberg, while the New Zealand dollar strengthened versus all its major counterparts.

Debt Sales

The 30-year Treasury yield rose seven basis points before the U.S. auctions $56 billion of three- and six-month bills.

The German 10-year bund yield rose less than one basis point, while yields on two-year notes were three basis points lower. Italian 10-year bonds fell, leaving the yield up two basis points at 6.94 percent and Austrian bonds slid, driving the difference in yield with bunds 10 basis points higher. The French-German spread widened four basis points as France auctions as much as 8.9 billion euros of 84-, 161-and 315-day securities today.

Belgium’s two-year note yield fell one basis point as the government sold almost 2.44 billion euros of three-month and six-month treasury bills, more than it planned, with borrowing costs dropping to an 18-month low.

Default Risk

The cost of insuring against default on corporate and financial bonds fell, with the Markit iTraxx Crossover Index of 50 companies of mostly high-yield credit ratings dropping 13.5 basis points to 741.5, the lowest since Dec. 7, according to JPMorgan Chase & Co. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased nine basis points to 268.

Bank funding costs declined with the three-month cross- currency basis swap, the rate lenders pay to convert euro interest payments into dollars, slipping to 105.5 basis points below the euro interbank offered rate. That’s the lowest cost since Nov. 8, data compiled by Bloomberg show.

Oil in New York jumped 2.7 percent to $101.51 a barrel as Iran’s Deputy Navy Commander Rear Admiral Mahmoud Mousavi told Press TV that any effort to harm the nation’s interests will lead to “reciprocal measures.” Copper advanced 1.3 percent.

The MSCI Emerging Markets Index rose 1.9 percent, set for the highest close since Dec. 9 and the biggest gain in two weeks. The Hang Seng China Enterprises Index jumped 3 percent as trading resumed in Hong Kong. Benchmark indexes gained more than 2 percent in Russia, India, South Africa and South Korea.

Hungary sold three-month Treasury bills at 7.67 percent, the highest since August 2009, after lawmakers approved regulations Dec. 30 that reduced powers of the president of the central bank, despite opposition from the International Monetary Fund and the European Union. The BUX Index of stocks slid 1.9 percent and the forint weakened 0.5 percent against the euro.

--With assistance from Claudia Carpenter, Namitha Jagadeesh, Abigail Moses, Andrew Rummer, Daniel Tilles and Jason Webb in London. Editors: Stephen Kirkland, Stuart Wallace

To contact the reporters on this story: To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net;

To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net

View the original article here