Global Market Report 18 July 2012

Stocks shook off the Fed chief's dour view of US growth, reversing early losses on hopes central bankers might be forced to come to the economy's aid.

The Dow Jones Industrial Average rose 78.33 points, or 0.62%, to 12,805.54. Blue chips fell hard after Federal Reserve Chairman Ben Bernanke gave few clues that the US central bank would take imminent steps to support the US economy, in testimony before the Senate Banking Committee. Investors said Mr. Bernanke's lack of specifics initially disappointed the markets.

But the Dow industrials stormed back from an 82-point drop to trade firmly in the black, staging their biggest swing from negative to positive territory in nearly six months.

The Standard & Poor's 500-stock index gained 10.03 points, or 0.74%, to 1,363.67, and the Nasdaq Composite Index added 13.10 points, or 0.45%, to 2,910.04. All 10 of the S&P 500's sectors rose, lead by health-care and materials stocks.

A trio of bellwether stocks gained ground despite reporting falling profits compared with a year ago.

Coca-Cola advanced $1.21, or 1.6%, to $77.69, after the beverage giant reported second-quarter earnings and revenue that topped analysts' estimates.

Goldman Sachs Group gained 30 cents, or 0.3%, to 97.98 after the investment bank reported second-quarter earnings and revenue that exceeded expectations. Additionally, Goldman agreed to sell Goldman Sachs Administration Services, a hedge-fund administrator, to State Street for $550 million.

Johnson & Johnson rose 55 cents, or 0.8%, to 69.00 even after the drug and consumer-products company reported second-quarter revenue that fell short of analysts' expectations and lowered its 2012 earnings outlook.

Mattel soared 3.01, or 9.7%, to 34.05 and was the S&P 500's biggest gainer after posting a surprise 20% jump in second-quarter earnings, helped by higher sales for Fisher-Price preschool toys and American Girl dolls.

Mosaic Co. climbed 2.84, or 5.1%, to 58.21 after the fertilizer producer's quarterly results were better than expected, and the company doubled its quarterly dividend to 25 cents.

In US economic news, consumer prices were flat in June, in line with expectations, as energy costs continued to fall. Investors have said the Fed might be less hesitant to roll out additional stimulus measures if inflation is lower. Industrial production picked up in June, rising slightly more than expectations, according to the Fed. Meanwhile, capacity utilization increased slightly but fell short of expectations.

Elsewhere, home builders' confidence in July had the biggest monthly jump in nearly a decade, another sign of optimism in the housing market.

On Wednesday, Mr. Bernanke will address the House Financial Services Committee in the second day of the Fed chief's semiannual monetary-policy address to Congress.

In other corporate news, Yahoo fell four cents, or 0.3%, to 15.60 after the Internet company named longtime Google executive Marissa Mayer as president and chief executive Monday.

Elsewhere on the corporate-earnings front, JB Hunt Transport Services slumped 3.18, or 5.5%, to 55.15 after the trucking company reported second-quarter earnings that matched analysts' expectations, but revenue fell short of forecasts.

TD Ameritrade Holding declined 13 cents, or 0.8%, to 16.27 after the online-brokerage company's fiscal third-quarter earnings slumped 2.3% as revenue and average client trades declined.

Charles Schwab rose 34 cents, or 2.7%, to 13.01 after reporting that second-quarter earnings rose 16% as revenue improved and the online brokerage opened more accounts.

State Street fell 2.81, or 6.4%, to 41.33 after the company's second-quarter earnings fell 4.5% on lower foreign-exchange trading revenue and lower fees from its investment-management business.

Digital Generation surged 2.19, or 23%, to 11.80 after the advertising-management company said it was exploring strategic alternatives to maximize shareholder value, including a possible sale of the company.

Treasury bonds fell Tuesday, losing ground to US stocks, as hope resurfaced after initial disappointment on the prospects of new monetary stimulus from the Federal Reserve. But sentiment soon brightened again as Mr. Bernanke, during the question-and-answer session, reiterated the central bank is prepared to act if needed. Federal Reserve Bank of Cleveland President Sandra Pianalto, also a voter this year on monetary policy, said the Fed may have to do more if the economy's performance gets worse. At 7:45 AM (AEST), the 10-year Treasury note yield was 1.51% and the 5-year yield was 0.62%.

The US dollar strengthened against the euro and the yen after Ben Bernanke failed to indulge investors' hopes for additional economic stimulus. The Australian dollar also fell into negative territory against the US currency during Mr. Bernanke's testimony, after gaining for most of the day on less-dovish-than-expected minutes from the most recent rate-setting meeting of Australia's central bank.

Bernanke disappointed investors looking for hints that additional stimulus is imminent, leaving European stocks to end a volatile trading session in negative territory.

The Stoxx Europe 600 index closed 0.3% lower at 256.09, breaking a two-day winning streak.

Shares of Alcatel-Lucent dropped the most in the pan-European index, falling 20% after the French telecom-equipment maker warned performance in the second half won't meet its operating-margin guidance for the full year.

Among other notable decliners, G4S PLC tumbled 5.7%, as it was downgraded to neutral from buy by analysts following an Olympic Games staff shortage and contract debacle.

On the data front, the ZEW index of German investor expectations dropped to minus 19.6 in July from minus 16.9 in June.

Spain's IBEX 35 index outperformed most major European country-specific indexes, adding 0.4% to 6,558.20. The government successfully sold 3.56 billion euros of government debt amid sharply lower borrowing costs.

In the secondary market, yields on benchmark 10-year Spanish government bonds were marginally higher at 6.77%, according to electronic trading platform Tradeweb.

Utility firms helped lift the Spanish index. Iberdrola SA advanced 2.3% after analysts lifted the stock to overweight from equal weight, while Gas Natural SDG SA gained 0.6% as the bank upgraded the firm to equal weight from underweight.

Elsewhere, the UK FTSE 100 index shed 0.6% to 5,629.09 as banks and resource firms came under pressure.

Heavyweight HSBC Holdings PLC fell 1.7%. The bank said in a statement dated Monday that it would apologize and acknowledge its mistakes when it appears Tuesday before the US Senate Permanent Subcommittee on Investigations in relation to a money-laundering investigation.

Rio Tinto dipped 69.50 pence (2.33%) to 2,960.22 pence and BHP Billiton declined 12.00 pence (0.67%) to 1,786.50 pence. Rio slid after reporting record iron-ore and coking-coal production in the first half of the year but remaining cautious on the global economic conditions.

In France, oil group Total SA slipped 0.4%. The CAC 40 index closed 0.1% lower at 3,176.97.

In Germany, the DAX 30 index rose 0.2% to 6,577.64, as chemicals producer BASF SE added 1.2% after its fungicide Xemium gained European Union approval.

Asian shares gained on Tuesday as investors bought ahead of Ben Bernanke's testimony to Congress later in the day, while a stronger yen prompted comments from Japan's finance minister.

Expectations of further easing, along with weak retail figures out of the US placed the dollar under pressure, with the greenback touching a four-week low against the yen overnight on Monday.

The rise in the yen was bad for Japanese exporters. Sony dropped 3.4%, Canon Electronics fell 2.4% and Nikon was 2% lower.

Banks in Japan were also reacting to the rally in their US peers on Friday, which they missed due to Monday's local holiday. Nomura Holdings was up 1.1%, Daiwa Securities gained 1.9% and Mitsubishi UFJ Financial Group rose 0.5%. The Nikkei was 0.4% higher at 8,755.00.

Banks also rose in Hong Kong, where the Hang Seng Index was 1.8% higher at 19,455.33. The large Chinese state-owned banks were all higher: Industrial & Commercial Bank of China gained 2.5% and Bank of China rose 1.1%.

Investors weren't put off Hang Seng Index heavyweight HSBC despite a US Senate investigation saying that for years the bank's operations were being used by money launderers and potential terrorist financiers. The bank climbed 1.3% in Hong Kong.

South Korea's Kospi gained 0.2% to 1,821.96 and the Shanghai Composite climbed 0.6% to 2,161.19.

In company news, Hyundai Motor fell 2.4% in Seoul after Hyundai Heavy Industries sold a 1.45% stake in the carmaker in a block trade before the market opened.

In Hong Kong, coal transportation company Winsway Coking Coal Holdings fell 10.1% after warning it expects to report a loss for the second half of 2012.

Base metals closed mostly lower on the London Metal Exchange as investors expressed their disappointment over Federal Reserve Chairman Ben Bernanke's prepared remarks to the US Senate.

Oil futures ended at their highest since late May, relying on momentum to shake off disappointment after US Federal Reserve Chairman Ben Bernanke offered no clear hints of further monetary-policy stimulus for now.

Gold recouped nearly all of the session's losses and ended nearly flat as initial investor disappointment at Mr. Bernanke's comments to the Senate Banking Committee faded.