NEW YORK — U.S. stocks soared more than 2 percent in a broad rally Monday as a merger between two big Greek banks provided a rare bit of encouraging news out of debt-stricken Europe.
Greek equities jumped 14 percent and the country’s banking shares alone surged 29 percent as the merger shrank the number of weak banks in the euro zone, reducing the chance of calls on the region’s Financial Stability Fund for recapitalization.
The participation of the Qatar Investment Authority in the tie-up between Eurobankand Alpha Bank — the second- and third-largest banks in Greece — also showed that some foreign investors were beginning to see European assets as undervalued. The deal creates the largest bank in southeastern Europe.
“We’ll probably need to see greater policy action in the region, but the merger needs to be done and that’s why we’re seeing a pause in the recent selling pressure,” said David Ruff, portfolio manager at the Forward Select EM Dividend Fund in San Francisco.
Even with Monday’s rally, Greek banking shares were still down nearly 50 percent year-to-date, troubled by rating downgrades, deposit outflows and loan impairments in the wake of the country’s worst recession in four decades. The merger news sent stocks of Eurobank and Alpha up 30 percent each.
An unexpected surge in U.S. consumer spending for July — which indicated the economy was not falling back into recession — further boosted sentiment across global markets.
Trading volume around the world was low, with London closed for a holiday and Wall Street recovering from Hurricane Irene. Light volume exacerbates stock moves, making them bigger or smaller than normal.
On Wall Street, the Dow Jones industrial averageended up 254.71 points, or 2.26 percent, at 11,539.25. The Standard & Poor’s 500 Indexadded 33.28 points, or 2.83 percent, at 1,210.08. The Nasdaq Composite Indexwas up 82.26 points, or 3.32 percent, at 2,562.11.
World sharesrose 2.5 percent.
Aside from banking stocks, shares of U.S. insurers also jumped, due to less-than-feared property damage from the weekend’s Hurricane Irene.
Bonds, dollar, and gold down
U.S. Treasuries prices fell as investors turned to stocks. The benchmark 10-year U.S. Treasury notewas down 22/32, its yield at 2.2676 percent.
The dollar was 0.1 percent lower against a basket of major currencies.
Spot goldalso fell, by more than 2 percent, to below $1,790 an ounce as investors moved away from safe-havens to embrace riskier assets like oil.
U.S. crude oilsettled up 2.2 percent, above $87 per barrel and extending gains from Friday on the possibility of fresh stimulus for the U.S. economy from the Federal Reserve. Fed Chairman Ben Bernanke left the door open for such stimulus during a speech in Jackson Hole, Wyoming, last week..
Bernanke, in his annual address to central bankers, gave no details on whether the Fed was planning to flood markets with more dollars to help the economy. But he said the central bank’s policy panel would meet for two days next month instead of one to discuss additional monetary stimulus, offering hopes of a move then.
Some analysts think it may be hard for Bernanke and the Fed to follow through with another round of bond buying after the $600 billion program that expired in June.
“He (Bernanke) has a much, much harder decision this time,” Jim Walker, founder of Asianomics, told Reuters television. “What he’s got to do is convince the dissenting voices in the Fed — and there are now three of them — that economic growth is so bad that it is time to use even more extraordinary measures.”