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Dow rallies on ECB talks despite weak US economic readings

15th Sep 2011, 10:27 am by Deborah Sterescu and Joyanta Acharjee
Dow rallies on ECB talks despite weak US economic readings

US equity markets opened higher Thursday as eurozone fears were put on the back burner, with the European Central Bank saying it is coordinating with the US Federal Reserve and other central banks. This led investors to shrug off weak economic reports on US inflation and jobless claims.

In morning trading, the Dow Jones Industrial Average was up 1.19% or 133.89 points at 11,380.62, the S&P 500 was 1.04% higher or 12.36 points at 1,201.04, and the tech-focused NASDAQ gained 0.92% or 23.68 points, at 2,596.23.

Markets closed higher across the board Wednesday, with the Dow ending the session up 1.27%, after German Chancellor Angela Merkel and French President Nicolas Sarkozy Wednesday calmed nervous investors. The two leaders insisted Greece would remain a eurozone member and would achieve its fiscal targets.

On the economic front in the US, consumer prices in August rose a seasonally adjusted 0.4%, more than the 0.2% increase expected - not good news for the economy since as prices for basic necessities rise, consumers will have less to spend on other goods, slowing economic growth. The rise in consumer prices was also a main factor in the 0.6% drop in the average hourly wages of US workers.

Excluding the more volatile food and energy categories, the core rate of consumer price inflation rose by 0.2%, as expected by analysts. Over the past year, consumer prices have jumped an unadjusted 3.8%, when in November, the 12 month increase was a mere 1.1%.

The Empire State manufacturing index weakened to a negative 8.8 in September from negative 7.7 in August, the lowest reading since November 2010.

Meanwhile, the number of new applications for unemployment benefits rose to 428,000 for the week ending September 10 - the highest level since June - from an upwardly revised 417,000 reading a week earlier. Economists had expected new requests for jobless benefits to rise to 418,000.

Shares in UBS (NYSE:UBS) plunged 9.3% in New York as Switzerland's biggest bank said it may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank. Police in London have arrested a 31-year-old man on suspicion of fraud.

Netflix (NFLX) shares were down nearly 13% after the company reduced its forecast for third quarter subscriptions in the US.

General Motors (NYSE:GM), the world's second-biggest auto maker, was up 1.4% as it agreed to extend contract talks with the United Auto Workers union after initial discussions failed to yield a new agreement by the Wednesday deadline.

BlackBerry maker Research in Motion (NASDAQ:RIMM)(TSE:RIM) rallied more than 2% on the Nasdaq ahead of its expected third-quarter earnings release Thursday after market close.

Analyst estimates suggest RIM, which has been struggling to compete for market share against competitors like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG), is likely to report revenue of $4.5 billion, with earnings per share of about $1.40. In June, the smartphone maker said it expected third-quarter revenues in the range of $4.2 and $4.8 billion.

Commodities

On the NYMEX, in floor trading, crude futures were 0.55% higher, or 49 cents, at $89.40, while gold futures for December were 1.51% lower at $1,799.00 an ounce.

Europe

European shares rose on Thursday as investors grew more confident on progress surrounding the eurozone's sovereign debt situation and ahead of Friday's meeting of Europe's Economic and Financial Affairs Council, which will be attended by US Treasury Secretary Timothy Geithner. London's FTSE 100 gained over 2%, Germany's DAX added 3.5%, and France's CAC-40 was up nearly 3.6%.

On Wednesday, there were also talks that the European Commission was close to unveiling a proposal for a new common eurozone bond, which lifted investors' moods.

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