Dollar Approaches Monthly High but Follow Through will be a Struggle

By John Kicklighter, Currency Strategist

• Dollar Approaches Monthly High but Follow Through will be a Struggle
• Euro Weathers 3Q GDP Figures but Financial Troubles Making Up for It
• British Pound Traders Should Watch the BoE Quarterly Inflation Report Closely
• Japanese Yen: Will the Bank of Japan Attempt to Shift the Yen at its Rate Decision?
• Australian Dollar Bulls Can’t Hold onto RBA Optimism from Minutes
• Canadian Dollar Sliding Towards Critical Boundary with US Dollar as Risk Drops
• Gold Refuses to Play the Role of Straightforward Safe Haven

Dollar Approaches Monthly High but Follow Through will be a Struggle

Risk aversion was the name of the game through much of Tuesday’s session; but a sharp correction in sentiment measured through equities in the second half of the session seemed to put demand for a safe haven on ice. Yet, through this swing in speculative interest; the dollar seemed to hold a remarkably consistent (albeit tame) advance. Now, heading into new trading day, we find the risk aversion switch once again flipped. Equity futures are pulling back; but the progress being made does little to incite the threat of new, robust bear trends. Alternatively, we find the US Dollar Index pushing above 9,850 to mark highs last seen a month ago. This is a noteworthy divergence in risk-sensitive markets that have otherwise moved more-or-less in lockstep over recent weeks. What does this mean? Is this a permanent divergence? Could there be a major fundamental trend shift in the works?

To appreciate the connection between equity and FX markets in risk appetite, it is worth noting that the 20-day correlation between EURUSD and the S&P 500 through the beginning of this month was 98 percent. That is a remarkable. However, up to today, that relationship has dropped to 49 percent – a dramatic divergence which we can certainly see evidence of in this morning’s price action. In general, the two market’s broad trends are the same; but the smaller corrections are not running at the same time or pace. The foundation of this disparity is most likely a lack of true momentum – both fundamentally and technically. For technical traders, it isn’t difficult to spot the congestion (directionless chop) on the benchmark US equity index since the beginning of the month. EURUSD on the other hand is finding a little more progress in its decline (thanks to intrinsic fundamental issues in Europe, which we will discuss in more detail below) but is still failing to secure a trend akin to late August.

The fundamental implications are that there simply isn’t a strong enough drive in underlying sentiment to maintain cross-market correlations through market-wide capital flow. In other words, there isn’t enough fear to encourage the wholesale scramble to safety. That said, it is surprising that the dollar (typically a liquidity provider during deteriorating financial conditions) should lead the drive. The reference to data (advanced retail sales and factory-level inflation) or central bank speak doesn’t hold the necessary influence to fill the gap here. Divergences like these do not last for long; so unless risk aversion commits to the risk aversion drive, the greenback’s rally could sputter. Looking for catalysts to stoke fear; there is little that can carry the overall market. And so, we will keep a close watch on the performance between EURUSD and S&P 500 futures.

Euro Weathers 3Q GDP Figures but Financial Troubles Making Up for It

The third quarter GDP figures that printed Tuesday were an opportunity for market participants to see exactly what kind of impact the burgeoning financial crisis is having on the Euro-region. However, instead of optimists finding a harsh dose of reality in freezing credit markets and strong austerity; the masses were able to cling onto their temporary hope and fall back on complacency as France recorded 0.4 percent expansion and Germany grew 0.5 percent. As the core continues to hold out from the financial contagion, there is still room for the ardent bulls to hang onto the belief that the Euro Zone will be able to stabilize its crisis and return to strong form. However, reality is better reflected in the Spanish bond auction of the past session. Like the painful Italian bond auction on Monday, Spain paid sharply higher yields to raise funds in 12 and 18-month bond auctions. In the upcoming session, Portugal will be the next litmus test. In financial strain, we see the real future of capital flow.

British Pound Traders Should Watch the BoE Quarterly Inflation Report Closely

The British pound made a remarkable came under remarkable pressure through this past session – dropping below critical 1.5850 against the dollar and even losing ground against high yielding currencies in the second half of the day. Despite BoE Governor King’s confidence that inflation will drop aggressively; CPI is still running at 5.0 percent and creating trouble with an economic slowdown. With King’s view, the MPC’s push for bond purchases and warnings of possible recession; we now look ahead to a likely dovish BoE Quarterly Inflation report.

Japanese Yen: Will the Bank of Japan Attempt to Shift the Yen at its Rate Decision?

Sometime in the coming hours, the Bank of Japan is scheduled to announce its monetary policy decisions for this month. It is unlikely that the group changes stimulus programs (much less official rates); but there is a lingering threat that economic strain, political pressure and the USDJPY’s retracement of post-Ministry of Finance intervention will force the BoJ into action. Simply yen selling won’t do. They need creativity.

Australian Dollar Bulls Can’t Hold onto RBA Optimism from Minutes

Tuesday morning, the Australian dollar caught a notable bid after the market learned from the RBA minutes that there was an argument to be made in holding the nation’s benchmark rate. However, rates were cut; and the market is fully pricing in another 25bp drop next month. It’s hard to take an optimistic view on a clearly bearish/dovish event when risk aversion is redefining the Aussie dollar’s bearings.

Canadian Dollar Sliding Towards Critical Boundary with US Dollar as Risk Drops

USDCAD is temping a month-long range top at 1.0260 as risk aversion undermines investment currencies (a group that the loonie certainly fits into). There was modest event risk this past session and we have more through the second half of this week; but the data likely carries little influence in these markets. What truly matters with this pair is that we are specifically highlighting liquidity.

Gold Refuses to Play the Role of Straightforward Safe Haven

Looking at the S&P 500 and Gold daily charts side-by-side, we see something remarkable – a positive correlation. One is a renowned risk appetite barometer and the other a favored safe haven; and yet they are moving in the same direction. This is another example of what can happen when strong and persistence shifts in fundamental expectations and sentiment dissipate. If the dollar continues to gain, both will lose.

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(BN) Obama Says ‘Enough’s Enough’ on China Currency Valuation

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Obama Says 'Enough's Enough' on China Currency Valuation

Nov. 14 (Bloomberg) -- President Barack Obama kept up his pressure on China's foreign-exhange policy and trade practices, saying "enough's enough" on what the U.S. views as a too-slow appreciation of the yuan.

While there's been a "slight improvement," China's exporters "like the system the way it is" and are resistant to any moves to loosen the reins on the yuan, Obama said.

"Changes are difficult for them politically, I get it," Obama said at a news conference concluding a summit with Asia- Pacific leaders in Hawaii yesterday. "But the United States and other countries, I think understandably, feel that enough's enough."

As he seeks to reassert U.S. interests in Asia, Obama is using increasingly strong language on China's trade, currency and intellectual property policies. The U.S. contends China's currency is kept artificially low, putting American businesses at a disadvantage and driving up Chinese trade surpluses.

Obama, who met Nov. 12 with China's President Hu Jintao in Honolulu, said that as China's influence rises, leaders of the world's second-largest economy must take more responsibility for making sure trade is fair and that intellectual property rights are respected. Hu and Obama were in the Hawaiian capital to attend the annual Asia Pacific Economic Cooperation summit.

China's Response

China has pushed back against the pressure. After Obama told Hu that the U.S. public and businesses were losing patience with China's policies, the Chinese Foreign Ministry released a statement saying the U.S. trade deficit and unemployment are not caused by the yuan exchange rate and a large appreciation in the currency won't solve U.S. problems.

"China's foreign exchange policy is a responsible one," Hu told Obama, according to the statement. The country will "continue reforming its exchange rate mechanism."

The yuan has gained about 8 percent against the dollar in nominal terms since the country ended a two-year peg to the U.S. currency in June 2010, and 30 percent since July 2005. In real, or inflation-adjusted, terms the gain has been more than 10 percent, because consumer prices have risen faster in China than in the U.S.

The yuan rose 0.04 percent to 6.3400 per dollar as of 10:30 a.m. in Shanghai, according to the China Foreign Exchange Trade System.

"We recognize they may not be able to do it overnight," Obama said about the currency valuation, "but they can do it much more quickly than they've done it so far."

Companies 'Wary'

Obama said that he's consistently raising concerns with the Chinese about currency, intellectual property and market access because U.S. companies "are wary" that they will be restricted in doing business in China if they raise complaints.

Two-way trade between the U.S. and China was $457 billion last year and the U.S. deficit was $273 billion. Still Obama and U.S. businesses regard China as a growing market for American goods; of the 2.3 million vehicles General Motors Co. delivered in the second quarter, 588,000 were sold in China, where the Detroit-based company is No. 1 in market share.

A March survey by the American Chamber of Commerce in China found 78 percent of member companies in the country said their China operations in 2010 were very profitable or profitable. At the same time, 24 percent of respondents said China's economic reforms had done nothing to improve the environment for U.S. businesses in the country, up from 9 percent who said the same an earlier poll.

Iran Sanctions

During the news conference, Obama also said the U.S. is examining stronger sanctions on Iran over its nuclear program. He said U.S. Russia and China "agree on the objective" that Iran must not be allowed to develop a nuclear weapon. He declined to say whether Hu and Russian President Dmitry Medvedev indicated they would support a new round of penalties.

Russia and China have resisted efforts to impose tighter sanctions on Iran at the United Nations. The International Atomic Energy Agency has concluded that Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, has continued working on nuclear weapons capability until at least last year.

Obama said the sanctions that have already been imposed have "enormous bite."

While Obama's focus during the 55-minute press conference was on Asia, he couldn't escape domestic politics. He was asked at several points to respond to criticisms raised by Republican presidential candidates at a Nov. 12 debate.

Republican Criticism

Former Massachusetts governor Mitt Romney said Obama's "greatest failing" as president was not preventing Iran from making progress toward a nuclear weapon and that "if we reelect Barack Obama, Iran will have a nuclear weapon."

Obama said he's "going to make a practice of not commenting on whatever is said in Republican debates until they've got an actual nominee." Still, he defended his administration's efforts to hold Iran accountable and indirectly hit back at Romney.

"Now, is this an easy issue? No," he said. "Anybody who claims it is, is either politicking or doesn't know what they're talking about."

On domestic issues, Obama said the bipartisan congressional supercommittee working to narrow the U.S. budget deficit must "bite the bullet" and come up with a plan that includes both cutting spending and increasing revenue.

"Prudent cuts need to be matched with prudent revenue," Obama said. "There are no magic beans that you can toss in the ground and suddenly a bunch of money grows on trees."

To contact the reporters on this story: Julianna Goldman in Honolulu at jgoldman6@bloomberg.net Margaret Talev in Honolulu at mtalev@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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(BN) U.S. Stocks Rise on Consumer Confidence as Italy Approves Plan

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U.S. Stocks Rise on Consumer Confidence as Italy Approves Plan

Nov. 11 (Bloomberg) -- U.S. stocks rallied, preventing a second straight weekly drop in benchmark indexes, as American consumer confidence topped estimates and Italy's approval of debt-reduction plans eased concern about Europe's debt crisis.

All 10 groups in the Standard & Poor's 500 Index rose as 487 stocks gained. Bank of America Corp. and Citigroup Inc. increased at least 2.4 percent as financial shares advanced. Caterpillar Inc. and Alcoa Inc. climbed more than 3.4 percent to pace gains among the biggest companies. Walt Disney Co. jumped 6 percent as the largest theme-park operator reported a 30 percent gain in profit, beating analysts' projections.

The S&P 500 added 2 percent to 1,263.85 at 4 p.m. in New York. The gauge has risen 0.9 percent since Nov. 4, preventing a second weekly drop. The Dow Jones Industrial Average advanced 259.89 points, or 2.2 percent, to 12,153.68. The Russell 2000 Index of small companies gained 2.6 percent. Trading volume dropped to about 6 billion shares, the lowest since July 25, as the Treasury market was shut for Veterans Day.

"Things are starting to settle back in," Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., said in a telephone interview. His firm oversees about $355 billion. "The expectation was that Italy and Greece were going out of business. That was overdone. We're going to see some necessary austerity measures put in place," he said. "In the U.S., the economic numbers have absolutely turned the corner and are starting to accelerate."

Stocks extended their rally as the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 64.2 this month, the highest since June. The median estimate of economists surveyed called for 61.5.

Italian Bond Yields

Earlier gains were driven by a drop in Italian bond yields as the nation's Senate approved budget measures in a bid to allow for a new government. In Greece, Lucas Papademos, a former vice president of the European Central Bank, was sworn in as premier of a unity government.

The Morgan Stanley Cyclical Index jumped 2.7 percent as investors became more optimistic that the global economic recovery would not be derailed by Europe's debt crisis. The Dow Jones Transportation Average added 2.8 percent, while the KBW Bank Index gained 2.1 percent.

Gauges of consumer discretionary, industrial and commodity shares in the S&P 500 had the biggest gains among 10 industries, rising more than 2.3 percent. Bank of America climbed 3 percent to $6.21, while Citigroup advanced 2.4 percent to $29.33. Caterpillar, the world's largest construction and mining- equipment maker, increased 4.3 percent to $96.13. Alcoa, the biggest U.S. aluminum producer, rose 3.4 percent to $10.60.

'Risk On'

"It's like investors hit the keystroke to risk on," Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. "The European situation is seemingly coming to some closure and a decent consumer confidence report brought investors to risk assets."

Walt Disney climbed 6 percent, the most in the Dow, to $36.70. Higher fees from pay-TV operators, advertising gains and improved results at resorts drove revenue and profit growth. Audience ratings for ESPN increased 13 percent in the quarter, according to Nielsen data provided by Barclays Capital. Disney resorts benefited from higher ticket prices and a new ship.

Nvidia Corp. advanced 3.5 percent to $14.98. The maker of graphics processors reported third-quarter sales and profit that topped analysts' estimates, lifted by demand for chips used by computer gamers and designers. Nvidia has been winning market share in sales of graphics processors for desktop PCs from Advanced Micro Devices Inc., according to Patrick Wang, an analyst at Evercore Partners Inc.

Single-Serve Brewers

Green Mountain Coffee Roasters Inc. rallied 6.9 percent to $43.71. The largest U.S. seller of single-serve brewers plunged 39 percent yesterday, the most ever, as sales trailed estimates. The stock before today had lost 63 percent since its peak in September amid scrutiny of its accounting practices from short sellers including David Einhorn, wiping out $11 billion of market value.

E*Trade Financial Corp. fell 4.1 percent, the most in the S&P 500, to $9.09. The board of the online brokerage rejected putting the company up for sale. Before today, the shares dropped 41 percent in 2011, more than its bigger rivals Charles Schwab Corp. and TD Ameritrade Holding Corp.

The brokerage hired Morgan Stanley in July to explore a sale and then replaced the bank with Goldman Sachs Group Inc. E*Trade, based in New York, initiated the review following a request by Citadel LLC, its biggest shareholder, to address "catastrophic losses" that have driven the shares down 96 percent since 2007.

'Strong Desire'

"A strong desire to sell was never present at E*Trade and if any offers were in fact on the table, they were not compelling enough to change that fact," Patrick O'Shaughnessy, a Chicago-based analyst at Raymond James & Associates Inc., said in a report today. "In our view, the pool of potential buyers is and always has been relatively small."

Molycorp Inc. slumped 14 percent to $33.45. The owner of the largest rare-earth deposit outside China cut its 2011 production forecast and posted third-quarter profit and revenue that missed analysts' estimates. Rare earths are 17 metals used in batteries, electric cars, wind turbines and other products.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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(BN) Pennsylvania State May Be Downgraded by Moody’s in Wake of Abuse Scandal

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Penn State Debt May Be Cut by Moody's on Child Sex-Abuse Scandal

Nov. 11 (Bloomberg) -- Penn State University had its Aa1 revenue-bond rating placed on review for possible downgrade by Moody's Investors Service amid the investigation into a child sex-abuse scandal.

Moody's said it will examine the reputational and financial risk arising from the probe, after the Penn State football team's former defensive coordinator, Jerry Sandusky, was charged with sexually assaulting eight boys from 1994 to 2009.

About $1 billion of rated debt would be affected by a downgrade, according to the statement. The company said it will take several months to monitor events, including possible lawsuits, weaker student demand, decreased philanthropic support, changes in its relationship with the state and management moves. Aa1 is Moody's second-highest rating.

"While the full impact of these increased risks will only unfold over a period of years, we will also assess the degree of near- and medium-term risks to determine whether to downgrade," Moody's said in the statement.

A Penn State revenue bond maturing in March 2030 traded Nov. 9 at an average yield of 3.65 percent, down from 4.15 percent in a trade about a month earlier, according to data compiled by Bloomberg.

Penn State, with 96,000 students and more than 500,000 alumni, raised $195.3 million last year, up from $82 million in 1995, when former President Graham B. Spanier was appointed, according to the Council for Aid to Education, which tracks gifts. Spanier and football coach Joe Paterno were fired this week.

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net Greg Chang in San Francisco at gchang1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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(BN) Bank of America Says Regulators May Limit Transfer of Merrill Derivatives

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BofA Says Regulators May Limit Transfer of Merrill Contracts

Nov. 11 (Bloomberg) -- Bank of America Corp. may be prevented by regulators from shifting derivatives contracts into the books of a deposit-taking unit, potentially forcing the lender to hand over more collateral to counterparties.

The lender has designated the retail-deposit unit, Bank of America NA, as the new counterparty on some Merrill Lynch contracts after the company's credit ratings were cut in September, it said last week in a filing. The Federal Reserve and Federal Deposit Insurance Corp. have disagreed over the moves, and they are now discussing whether to allow future transfers, according to people with knowledge of the matter.

"Our ability to substitute or make changes to these agreements to meet counterparties' requests may be subject to certain limitations, including counterparty willingness, regulatory limitations on naming Bank of America NA as the new counterparty, and the type or amount of collateral required," the lender wrote in the quarterly regulatory filing.

At stake for Bank of America is the power to curb billions of dollars in collateral payments to counterparties that could be required after a credit-rating downgrade. The company, which has lost more than half its market value this year amid rising expenses from soured mortgages, is vulnerable to further rating cuts, the bank said in the Nov. 3 regulatory filing.

Limits on moving contracts from Merrill Lynch to the deposit unit could "adversely affect" results, the Charlotte, North Carolina-based bank said in the filing. The transfers lower collateral obligations because the retail unit still has a higher rating than the Merrill Lynch subsidiary after the Sept. 21 downgrades from Moody's Investors Service.

Shifting Risk

"It's a game of 'move the risk,'" said Mark Williams, a former Federal Reserve examiner who lectures on financial-risk management at Boston University. "It makes sense for Bank of America, but the broader implication is that it makes the retail operations potentially riskier. If there is another downgrade, you have the possibility of falling off a credit cliff."

The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, people familiar with its position said Oct. 18. The FDIC, which would have to pay depositors in a failure, objected, the people said.

The other two major ratings firms, Standard & Poor's and Fitch Ratings, are re-evaluating Bank of America and may also cut its credit grades, the lender said in the quarterly filing. The full scope of damage from a credit-rating downgrade is "inherently uncertain" because it depends upon the behavior of counterparties and customers, the bank said.

Collateral Estimates

Derivatives are financial instruments used to hedge risks or for speculation. They're derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates. The contracts often require counterparties to post collateral in amounts that can increase if their creditworthiness deteriorates.

Bank of America's holding company -- the parent of both the retail bank and the Merrill Lynch unit -- held almost $75 trillion of the contracts at the end of June, according to data compiled by the Comptroller of the Currency. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades. The company is the second-largest U.S. lender by assets.

In August, the bank said a two-level downgrade by all ratings companies would require it to post $3.3 billion in additional collateral and termination payments, based on agreements as of June 30. As of Sept. 30, counterparties were entitled to $4.9 billion beyond what the bank had posted, according to last week's filing. Of that, $3.2 billion resulted from the Moody's downgrade.

JPMorgan's Holdings

Bank of America also said the impact of further downgrades would be more severe than in previous projections. Another two- level cut could amount to $6.6 billion in collateral demands, based on Sept. 30 data, it said.

The firm held cash and securities collateral of $93 billion as of Sept. 30, and had posted $87.8 billion, about 30 percent more than the end of 2010.

Bank of America's rating is now four grades below the one Moody's assigned to JPMorgan Chase & Co., which became the biggest U.S. bank by assets this year, and a level below the rating given to Citigroup Inc., the No. 3 lender. JPMorgan's deposit-taking entity, JPMorgan Chase Bank NA, contained 99 percent of the New York-based firm's $79 trillion of notional derivatives, according to the OCC.

'Not FDIC Insured'

Andrew Gray, a spokesman for the FDIC and Barbara Hagenbaugh of the Federal Reserve declined to comment on Bank of America's filing.

Congressional Democrats including North Carolina Representative Brad Miller and Ohio Senator Sherrod Brown asked regulators last month whether they explored potential risks from the derivative moves. Eighteen lawmakers signed onto letters seeking information.

"These derivative trades are not FDIC insured," said Jerry Dubrowski, a Bank of America spokesman. "Other financial institutions hold higher derivative balances in their banking entities."

Bank of America Chief Financial Officer Bruce R. Thompson discussed the transfers on a conference call with analysts last month after Bloomberg News reported that federal regulators were at odds over the movements.

"We had worked very hard over the course of the last nine months to be prepared to the extent that we did receive a downgrade, and feel very good about the way that we've minimized the potential impact," he said on the Oct. 18 call. The moves are part of "the normal course of dealings that we've had with counterparties since Merrill Lynch and BofA came together."

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net Dan Kraut at dkraut2@bloomberg.net .

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(BN) Stocks in U.S. Gain on Consumer Confidence, Italy Debt-Reduction Measures

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U.S. Stocks Gain on Consumer Confidence, Italy; Euro, Oil Climb

Nov. 11 (Bloomberg) -- Stocks rallied, preventing a second straight weekly decline for the Standard & Poor's 500 Index, and commodities climbed as U.S. consumer confidence improved and Europe took steps to address its debt crisis. Italy's bonds gained and oil reached a three-month high.

The S&P 500 jumped 1.9 percent to close at 1,263.85 at 4 p.m. in New York, pushing it up 0.8 percent for the week and 0.5 percent in 2011. The MSCI All-Country World Index added 2.2 percent after falling 3.1 percent in the previous two days. The euro appreciated 1.1 percent to $1.3752, while the dollar slid versus 16 major peers. Italian 10-year bond yields declined 44 basis points to 6.45 percent. Oil rose to almost $99 a barrel, capping the longest streak of weekly gains since 2009.

U.S. equities extended an early rally after a gauge of consumer sentiment topped estimates in November, reaching the highest level since June and bolstering optimism before the holiday shopping season. Italy's Senate approved debt-reduction measures, paving the way for a new government led by former European Union Competition Commissioner Mario Monti, while Greece swore in Lucas Papademos to head a unity government.

"It's like investors hit the keystroke to risk on," Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. "The European situation is seemingly coming to some closure and a decent consumer confidence report brought investors to risk assets."

The S&P 500 rose for a second day, adding to yesterday's 0.9 percent advance that was triggered by a drop in jobless claims and a retreat in Italian bond yields from records. The S&P 500 has rebounded about 15 percent from a 13-month low on Oct. 3 as the Citigroup Economic Surprise Index for the U.S., which gauges whether data is beating or trailing estimates, climbed to a seven-month high.

Disney Surges

Walt Disney Co. rose 6 percent to lead the Dow Jones Industrial Average higher after fourth-quarter earnings exceeded estimates on growth in cable TV and U.S. resorts. Bank of America Corp. and Alcoa Inc. also rose at least 3.4 percent, helping lead the Dow up 259.89 points, or 2.2 percent, to 12,153.68.

About 6 billion shares changed hands on all U.S. exchanges, the slowest trading session since July 25. Treasury trading was closed for the Veterans Day holiday.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 64.2 this month, the highest since June, from 60.9 in October. The median estimate of economists surveyed by Bloomberg News called for a reading of 61.5.

The Stoxx Europe 600 Index climbed 2.4 percent as all 19 industries advanced. A gauge of European banks rebounded 3.6 percent following two days of losses as BNP Paribas SA of France and the Royal Bank of Scotland Group Plc jumped more than 5 percent. Telecom Italia SpA gained 5.3 percent after third- quarter profit beat analysts' estimates.

Yield Spreads

The extra yield investors demand to hold Italy's 10-year debt instead of German bunds, Europe's benchmark government securities, dropped 55 basis points to 456 after climbing to a euro-era record 575 basis points two days ago. The French-German spread narrowed 19 basis points to 150 after S&P corrected an erroneous message to subscribers yesterday that suggested the nation's AAA credit rating had been lowered.

The Greek two-year yield rose to a record of 111 percent. The cost of insuring European sovereign debt fell, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments dropping 12 basis points to 333.

The euro strengthened against 12 of its 16 major counterparts. The U.S. currency fell against all 16, with the Dollar Index dropping 1 percent.

Crude oil rose 1.2 percent to $98.99, the highest since July, and capped a sixth straight weekly advance. Copper climbed 2.7 percent, the most in two weeks, to $3.4635 a pound. China, the biggest buyer of industrial metals, will focus on domestic growth to boost the world economy, Vice Finance Minister Wang Jun said in Honolulu.

The MSCI Emerging Markets Index rallied 1.8 percent, with Brazil's Bovespa surging 2.1 percent. The Hang Seng China Enterprises Index in Hong Kong advanced 1.3 percent, Hungary's BUX jumped 4.4 percent and Brazil's Bovespa gained 2.1 percent. The Kospi Index rose 2.8 percent after South Korea left interest rates unchanged, while India's Sensitive Index lost 1 percent as the nation's factory output slowed. Funds investing in developing-nation stocks took in $2.1 billion in the week ended Nov. 9, Citigroup Inc. said, citing data compiled by EPFR Global.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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