- Pre-Market Indications

Monday, May 10, 2010

Indications: U.S. stock futures leap on European Union plan

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By Steve Goldstein & Kate Gibson, MarketWatch

NEW YORK (MarketWatch) -- U.S. stock futures surged Monday in what could be the best one-day gain of the year in reaction to a European Union plan designed to stave off a run on the euro.

"It was definitely a much bigger bailout than I expected. At long last the EU is putting its money where its mouth is," said Jack Ablin, chief investment officer at Harris Private Bank, of the nearly $1 trillion rescue package.

For the U.S. stock market, "it's back to business as usual," said Ablin.

After rising more than 400 points, futures for the Dow Jones Industrial Average were lately up 344 points, or 3.3%, at 10,679.

Those for the S&P 500 advanced 45.4 points, or 4.1%, to 1,152.9. Nasdaq 100 futures climbed 71.75 points, or 3.9%, to 1,920.25.

The Dow declined 5.7% last week, a volatile ride that had the index down almost 1,000 points on Thursday before recouping much of the loss by the end of the session.


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Highlights • Bond purchases seen as threat to ECB • EU may finally have got a rescue package right • Jury out on long-term impact of E.U. rescue plan • Clock ticking as Conservatives, Lib Dems talk

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As investors jumped back into equities and other riskier assets, U.S. bond prices fell and gold declined sharply after both rallied last week as investors looked for safer havens to park assets.

The euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2929, +0.0011, +0.0852%) rallied 1.7% to $1.2935, the Nikkei 225 rose 1.6% in Tokyo and the French CAC 40 leapt 9% in reaction to a plan that would see up to 750 billion euros ($970 billion) in loans to protect struggling euro-zone nations.

The U.S.-listed shares of a number of European banks surged over 20%: Allied Irish Banks /quotes/comstock/13*!aib/quotes/nls/aib (AIB 3.03, -0.11, -3.50%) , Banco Santander /quotes/comstock/13*!std/quotes/nls/std (STD 9.83, -0.10, -1.01%) , Bank of Ireland /quotes/comstock/13*!ire/quotes/nls/ire (IRE 7.39, +0.20, +2.78%) , Barclays /quotes/comstock/13*!bcs/quotes/nls/bcs (BCS 16.61, -0.84, -4.81%) , the Royal Bank of Scotland /quotes/comstock/13*!rbs/quotes/nls/rbs (RBS 13.27, -0.58, -4.19%) and the National Bank of Greece /quotes/comstock/13*!nbg/quotes/nls/nbg (NBG 2.67, -0.10, -3.61%) .

The program would include 60 billion euros of emergency loans available quickly, another 440 billion euro vehicle would guarantee EU loans and the International Monetary Fund would contribute up to another 250 billion euros.

There's more: the European Central Bank will go into the secondary market to buy euro-zone national bonds -- a step last week that its president, Jean-Claude Trichet, said the central bank didn't even contemplate -- and the Federal Reserve re-activated swap lines so foreign institutions can get access to loans.

"I think these markets had got themselves into a nosedive and that pushed them into technically oversold conditions. So all you need is a catalyst to turn things around. The important point is that -- somewhat belatedly but surprisingly -- the European Union and the IMF produced a very determined response to the problem," said Mike Lenhoff, a strategist at U.K. broker Brewin Dolphin.

The European Union's bigger-than-expected stabilization fund announced Sunday "constitutes a first move towards a fiscal union," said analysts at Morgan Stanley in a note. "If the emergency liquidity for the periphery is not complemented by aggressive austerity measures, the underlying solvency problems could continue to fester, and eventually spread to the core," they said.

The only losers were government bonds and gold. Yields on 10-year U.S. Treasury bonds climbed 14 basis points to 3.571%, and the yields on 10-year German bonds jumped 15 basis points to 2.90%.

Gold futures dropped $14.90 to $1,195.5 an ounce.

The FAZ /quotes/comstock/13*!faz/quotes/nls/faz (FAZ 14.80, +0.51, +3.57%) exchange-traded fund, which triples the inverse of the return on the Russell 1000 Financials, tumbled 14.6%.

Steve Goldstein is MarketWatch's London bureau chief. Kate Gibson is a reporter for MarketWatch, based in New York.

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