Global Market Report 26 January 2012

US blue chip stocks raced to an eight-month high and the Standard & Poor's 500-stock index stepped into a new bull market on Wednesday after the Federal Reserve said it would likely keep interest rates low until at least late 2014.

The Dow Jones Industrial Average rose 83.10 points (0.66%) to 12,758.85, its highest level since May 10, 2011. The blue-chip index had fallen as many as 96 points shortly after the opening bell, but shot higher after the Fed's announcement at 12:30 p.m. EST.

The S&P 500 finished with a gain of 11.41 points (0.87%) at 1,326.06, closing the day in bull-market territory--up more than 20% from its recent closing low on Oct. 3, 2011. The Nasdaq Composite led the major indexes with a gain of 31.67 points (1.14%) at 2,818.31.

The moves came after the central bank said it expects interest rates to stay at "exceptionally low levels" at least until late 2014. Previously, the Fed had said it expected the period of exceptionally low rates to last until mid-2013. The Fed said the economy continued to expand at a moderate pace and noted the recent improvement in overall labour-market conditions, though unemployment remains "elevated."

The Fed's move sent the dollar tumbling against its major rivals, pushing up commodity prices and sending Treasury yields sharply lower.

The stock market's reversal traced a pattern that has become familiar in recent days--chipping away at early losses throughout the day.

The Fed announcement added more complexity to a trading day dominated by corporate earnings and headlines from Europe.

Leading the day's gains was Apple, which saw its shares surge 6.2%, to a fresh intraday record, after the technology giant reported first-quarter earnings and revenue that blew past estimates, helped by sales of iPhones and iPads that more than doubled from a year earlier. The company also provided a fiscal second-quarter outlook that was above current forecasts.

Apple's gains helped the technology sector stand out as one of the strongest sectors on the S&P 500. Utilities also surged amid a drop in Treasury rates. Financial stocks were weakest.

In economic news, data on pending home sales for December showed an unexpectedly large month-on-month decline of 3.5%, while an index of home prices in November showed a 1% gain. Economists had expected pending home sales to slip 1% and for prices to remain unchanged.

In other corporate news, Boeing edged up 0.6%, after the aerospace company reported fourth-quarter results that exceeded expectations, but indicated that a large pension expense would hurt 2012 earnings.

United Technologies slipped 0.2% after the aerospace and building-controls company's fourth-quarter earnings matched fourth-quarter earnings estimates while revenue missed slightly, and the company affirmed its 2012 earnings outlook.

Advanced Micro Devices climbed 3.1% after the semiconductor maker's fourth-quarter earnings beat estimates but revenue missed slightly. Fellow chip maker Altera edged up 1.1% after the company reported better-than-expected fourth-quarter results but indicated current-quarter sales would miss estimates.

At 7:45 AM (AEST), the 10-year Treasury note yield was 1.99% and the 5-year yield was 0.79%.

European stocks ended mostly lower on Wednesday, as LM Ericsson AB and Novartis AG tumbled on sharp profit declines and Greece continued debt-swap negotiations with private creditors.

The Stoxx 600 index closed down 0.4% at 254.95, adding to Tuesday's decline.

The UK's FTSE 100 index declined 0.5% to 5,723.00 and the French CAC 40 index lost 0.3% to 3,312.48. In Germany, the DAX 30 index ended virtually flat at 6,421.85.

Pharmaceutical and telecommunication companies weighed heavily on markets with shares of Ericsson tumbling 14.1%.

The Swedish company reported a 65% profit decline for the fourth quarter. President and Chief Executive Hans Vestberg said Ericsson "saw weaker development in networks."

Investors were also looking out for any signs of progress in debt talks between Greece and private bondholders to write down debt, as negotiations had come to a stalemate.

The International Monetary Fund on Wednesday appeared to push the European Central Bank to write down holdings of its Greek debt, but the central bank has resisted pressure to accept a reduction in bond value, according to the Financial Times. It holds an estimated EUR40bn of Greek debt.

To avoid default, Greece must reach an agreement with creditors to secure a previously-agreed second bailout package from the IMF and the European Union.

Without the money Greece won't be able to repay EUR14.5bn of debt scheduled to come due in March.

Banks also had a hand in the day's equities pullback, but they still clinged to double-digit gains for the year.

Shares of Societe Generale SA fell 2.6% and Credit Agricole SA dropped 1.5%, extending losses from Tuesday after both banks' ratings were cut to A from A-plus by Standard & Poor's Ratings Services.

Also lower, Royal Bank of Scotland Group PLC shed 1.7%, Lloyds Banking Group PLC gave up 2.6% and Standard Chartered PLC dropped 1.2%.

Markets were briefly supported by positive news from the Ifo business climate index, a closely watched measure of business sentiment in Germany, the largest European economy.

The index rose for a third straight month in January and came in at 108.3, beating expectations for a reading of 107.6.

Asian bourses were mostly higher on the back of Apple's results. Japan's Nikkei Stock Average rose 1.1% to finish near a three-month high.

Base metals on the LME finished mixed. Aluminium rose $13 (0.58%) to $2,252 while copper fell $75 (0.90%) to $8,285 and nickel firmed $340 (1.65%) to $20,940. Zinc added $50 (2.35%) to $2,175 and lead strengthened $32 (1.42%) to $2,282. Comex copper was last quoted at 384.65 US cents per pound.

Spot gold was last quoted at $1,710.20. Comex gold futures improved $41.70 (2.51%) to $1,706.20. Spot silver was last quoted at $33.35.

West Texas Intermediate was last quoted at US$99.40 per barrel.

At 07:30 a.m. (AET) the US dollar was quoted at 0.7628 euros, 0.943 AUD, 77.71 yen and 63.87 pence.