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Stocks gain on European measures to confront debt

Investors cheer the passage of an austerity budget in Italy and further steps toward a unity government in Greece.

November 12, 2011|By Walter Hamilton and Tom Petruno, Los Angeles Times

The stock-market ping-pong ball bounced up as investors cheered new moves by debt-hobbled European nations to tackle their fiscal woes.

The passage of an austerity budget in Italy and further steps toward a unity government in Greece comforted investors who earlier in the week had feared the potential collapse of the continent's currency union.

Better-than-expected U.S. consumer confidence data also stirred optimism that the domestic economy is faring reasonably well in the face of Europe's troubles.

The Dow Jones industrial average jumped 259.89 points, or 2.2%, to 12,153.68, its fourth gain in the last five days. The rally pushed the Dow to a modest 1.4% gain for the week.

The sole down day for the week was a big one — the Dow tumbled nearly 400 points Wednesday on concern that Europe's debt crisis would consume Italy. Still, the market overall has continued the volatile up-and-down trading pattern that has gripped it the last three months.

Each sign of progress in Europe sparks powerful rallies, but bad news stirs equally abrupt sell-offs.

"I've never seen the markets in such a state where they are so one-sided and flip-flop from day to day," said A.C. Moore, chief investment strategist for Dunvegan Associates Inc. in Santa Barbara. "It's really quite a phenomenon."

That's caused largely by the absence of long-term investors, as hedge funds and high-frequency trading outfits bat stocks about each day, experts said.

"Hedge funds ... don't care about next month. They only care about tomorrow," said Phil Roth, a market analyst at New York brokerage house Miller Tabak & Co. "I think it's terrible."

The Standard & Poor's 500 index advanced 2%. But Friday's rally came on extremely light volume as many traders sat out the Veteran's Day holiday.

Share prices Friday rose 2.8% in France, 3.2% in Germany and 3.7% in Italy. The euro rallied 1.2% against the dollar to $1.377.

In Italy, the Senate passed an austerity budget conforming with European Union demands, potentially paving the way for embattled Prime Minister Silvio Berlusconi to resign as early as this weekend.

The yield on Italy's 10-year government bond dived to 6.45% from 6.89% on Thursday. The yield had reached 7.25% on Wednesday, the highest since 1997, as fears mushroomed about Italy's creditworthiness.

Even though Italian bond yields pulled back, the 10-year yield still ended Friday above its level of 6.37% a week ago, and well above the level of 5% in late August.

The next big test for Italy: The government will try to sell about $4 billion of five-year bonds Monday. The current market yield on that debt maturity: a pricey 6.46%.

In a sign that investors remained suspicious about Eurozone debt in general, yields fell only modestly in other key countries. The Spanish 10-year bond yield slipped to 5.85% from a three-month high of 5.86% on Thursday.

And France, part of the core of the Eurozone, remained a source of significant concern after its bond yields also soared this week to 3.39% on Friday from 3.05% a week earlier.

walter.hamilton@latimes.com

tom.petruno@latimes.com

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