US stocks posted their best day in four months on Tuesday after Citigroup said it was profitable in the first two months of 2009. Major indexes jumped off 12-year lows in heavy trading after a key lawmaker said he expected the reinstatement of a rule that makes it harder to bet that a stock will fall.
Financials led the huge rally, rising 16 percent after Citigroup Inc Chief Executive Vikram Pandit also stated in a memo to staff of what was once the largest US bank that he was confident about its capital strength. Adding to the positive tone, US Rep. Barney Frank, chairman of the US House Financial Services Committee, said he is hopeful the Securities and Exchange Commission will reimpose the "uptick" rule in about a month.
The rule slows the pace of short selling, or bets that a stock will fall, and could help calm volatile markets. "Theres been significant short covering in the financials today as a result of comments from Citis chairman lending a stronger tone to the financials overall," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
"The uptick rule possibly going back into effect would also be a significant positive for the financials. It would make it harder to short stocks," he added. The Dow Jones industrial average gained 379.44 points, or 5.80 percent, to 6,926.49. The Standard & Poors 500 Index climbed 43.07 points, or 6.37 percent, to 719.60. The Nasdaq Composite Index jumped 89.64 points, or 7.07 percent, to 1,358.28. This was the Dows largest percentage gain since November 21, 2008, and its fifth-biggest percentage increase since December 31, 2007.
According to Reuters data, the benchmark S&P 500 went into Tuesdays session at its most oversold condition in five months, when measured by its 50-day relative strength index. Shares of Citigroup, in which the government more recently took a large common equity stake to help shore it up, jumped 38.1 percent to $1.45. Citis stock has fallen about 78 percent year to date.
Other bank shares rallied, with Bank of America up nearly 28 percent at $4.79, and Wells Fargo up 18.5 percent at $11.81. An S&P index of financial stocks popped up 15.6 percent. J.P. Morgan was the Dows top performer with nearly a 23 percent jump to $19.50. All 30 Dow components were in positive territory.
The advance by financial shares marks a turnaround in investor sentiment after the sector has been hammered recently as banks credit losses swelled. After the closing bell, US Treasury Secretary Timothy Geithner said in an interview with Public Broadcastings Charlie Rose that the country was facing a deepening recession, but policy action would restore growth.
Other standouts included technology shares, with a jump in bellwethers like Apple Inc halting a three-day sell-off in the sector. The iPhone makers stock, up 6.6 percent at $88.63, provided the biggest boost to the Nasdaq 100. Microsoft gained 8.8 percent to $16.48 while Qualcomm added 7.2 percent to $35.36.
Highlighting the broad-based rally, the Dow Jones Home Construction index climbed 15 percent, led by Pulte Homes and D.R. Horton Inc. Trading was heavy on the New York Stock Exchange, with about 2.19 billion shares changing hands, above last years estimated daily average of 1.49 billion.
While on Nasdaq, about 2.39 billion shares traded, above last years daily average of 2.28 billion. Volume on the NYSE was the second largest for the year. Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 14 to 1, while on the Nasdaq, about five stocks rose for every one that fell.
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