NEW YORK | Mon Jan 3, 2011 6:09pm EST
NEW YORK (Reuters) - Stocks greeted the new year with a rally on Monday as encouraging signs about the outlook for manufacturing around the world prompted investors to inject new money into the market.
Data from the United States, Europe and China set the tone, helping the Dow and S&P reach new two-year highs and the Nasdaq 100 closed at its highest in nearly 10 years, but some investors think caution may be warranted in the short term.
Financials led the way higher after underperforming the market last year. Bank of America Corp jumped 6.4 percent to $14.19 after it agreed to pay $2.8 billion to mortgage finance giants Fannie Mae and Freddie Mac to settle claims over soured mortgages.
Overall, stocks got a boost from the "January effect" when fund managers are no longer engaged in year-end window dressing and instead focus on stocks they find attractive.
"There is a lot of money in cash, a lot of money in bonds that would like out of bonds, and it's only natural with the economic improvement it's finding its way to equities," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
The Dow Jones industrial average gained 93.24 points, or 0.81 percent, to 11,670.75. The Standard & Poor's 500 Index rose 14.23 points, or 1.13 percent, to 1,271.87. The Nasdaq Composite Index climbed 38.65 points, or 1.46 percent, to 2,691.52.
While the uptrend remained intact, the market has become overstretched in the short term, with the 14-day relative strength index suggesting the S&P 500 could struggle from here.
"With the overbought condition we have, we could see some profit taking creep in or short-term weakness," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
"But with the economic fundamentals still improving, more risk being assumed by traders and individual investors and with the Fed standing ready to print more money, there's no reason why we can't become more overbought."
Analysts said that, historically, a strong first day bodes well for the market's performance for the year.
Based on data since 1945, if the S&P 500 is up on the first trading day of the year, it ends the year higher 74 percent of the time, with an average annual gain of 10.6 percent, according to Birinyi Associates Inc. in Stamford, Connecticut.
If stocks end the month of January higher, then 73 percent of the time the index rises for the year, based on data since 1929, Howard Silverblatt, an analyst at Standard & Poor's, said.
U.S. stocks ended 2010 with double-digit gains, and the S&P 500 recorded its best December since 1991. The gains marked a recovery to September 2008 levels before the fall of Lehman Brothers.
Data showed the U.S. manufacturing sector grew for a 17th straight month in December, while U.S. construction spending increased in November to its highest level since June.
The global outlook also was bolstered after data showed China's factory inflation cooled in December, while manufacturing in Europe accelerated.
The Nasdaq 100's gain was driven largely by Apple Inc, which rose 2.2 percent to $329.57. Oppenheimer raised its estimates and price target on company. It was the highest close for the index since February 2001.
Alcoa Inc gained 2.7 percent to $15.80 after Deutsche Bank upgraded the stock.
About 7.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq. Advancing stocks outnumbered declining ones on the NYSE by 2,236 to 791, while on the Nasdaq, advancers beat decliners 2,053 to 636.
NEW YORK | Mon Jan 3, 2011 4:09pm EST
NEW YORK (Reuters) - Oil prices rose to a 27-month peak on Monday as upbeat European and U.S. manufacturing data and forecasts for cold weather reinforced optimism about economic and energy demand growth.
Manufacturing in the United States and Europe accelerated in December and growth in China and India slowed to a more sustainable level, helping to fuel a move by investors into riskier assets.
U.S. crude oil for February delivery rose 17 cents to settle at $91.55 a barrel, its highest settlement since early October 2008, after earlier rising as high as $92.58.
Crude oil prices pulled back late in the open outcry session after the U.S. Interior Department said it will allow 13 companies to resume deepwater drilling in the Gulf of Mexico without an additional environmental review.
In London, ICE Brent crude for February rose 9 cents to settle at $94.84 a barrel, also the highest close since October 2008.
Strong U.S. heating oil and ICE gas oil futures helped spark the oil futures complex strength, boosted by expectations more freezing weather is on tap for later in January.
U.S. crude oil futures were building on their end-of-year rally that left prices up 15 percent for 2010.
Total U.S. crude futures trading volume, thinned by the holiday season, was above 396,000 lots with 1-1/2 hours left in post-settlement trading. The 30-day average was 543,282.
"Heating oil strength is on the colder forecasts further out, and on top of that crude is being supported by the strong manufacturing data," said Phil Flynn, analyst at PFGBest Research in Chicago.
Total U.S. heating demand this week was expected to be only 0.5 percent above normal, the U.S. National Weather Service said, and heating oil demand 4.3 percent below normal.
But looking further out, the NWS' six- to 10-day and eight- to 14-day outlook issued Sunday called for below-normal or much-below-normal readings for the entire nation.
Temperatures in northern Europe also were forecast to be near to below normal in the six- to 10-day outlooks, according to private forecaster DTN Meteorlogix.
GROWTH OPTIMISM SUPPORTS PRICES
The fresh batch of encouraging economic data helped lift U.S. equities, pushing all three major indexes up more than 1 percent to start the new year. .N
U.S. manufacturing grew for a 17th straight month in December. The Institute for Supply Management report showed new orders rose, but factory sector employment slipped to a nine-month low.
U.S. construction spending rose in November to touch its highest level in five months.
Prior to the U.S. reports, investors received news that the official Chinese purchasing managers' index edged down in December, easing concerns about more efforts by China's government to cool off its economy.
The Markit Eurozone PMI, which records manufacturing activity across the major euro-area economies, rose in December from November to near April's 46-month high.
While oil prices are pushing toward $100 a barrel three years after crude first broke triple digits, analysts say spare production and refining capacity should prevent a repeat of the 2008 run up to $147 a barrel.
Analysts believe that OPEC members, especially Saudi Arabia, would likely step in and add production to ensure the economic recovery is not derailed.
(Factbox on key differences between 2008 and 2011 for oil markets: CONTANGO
U.S. crude futures remain in a stubborn contango, whereby prompt oil is cheaper than barrels for later delivery, a market condition that encourages storage. The spread between front-month February and March crude futures had the premium for March crude as high as $1 intraday on Monday.
Some brokers thought positions being rolled into the March contract may have helped curb the gains of front-month futures.
