By Rita Nazareth
Aug. 5 (Bloomberg) -- U.S. stocks rose, erasing an earlier tumble, amid speculation the European Central Bank was preparing to buy Italian and Spanish bonds to halt the region?s debt crisis.
Consumer staples and health-care companies led gains among 10 groups in the Standard & Poor?s 500 Index, rallying at least 1.2 percent. Bank of America Corp. and Citigroup Inc. led financial shares lower, losing more than 4 percent, as a weakening economy, Europe?s debt crisis and losses linked to souring home loans threaten to undermine earnings.
The S&P 500 increased 0.5 percent to 1,206.2 at 1:49 p.m. in New York after slumping 2.7 percent earlier. The benchmark gauge dropped 6.5 percent this week, and sank the most since 2009 yesterday amid concern the U.S. economy may slip into a recession. The Dow Jones Industrial Average rallied 110.54 points, or 1 percent, to 11,494.22. � ?If we are able to get policy makers working together like we did coming out of recession, the market is likely to respond better,? Eric Teal, chief investment officer at First Citizens Bancshares Inc. in Raleigh, North Carolina, said in a telephone interview. His firm manages $4 billion. ?We?re nearing some capitulation levels here. We?re in that transition process.?
Gains and Losses
The S&P 500 fluctuated between gains and losses during the trading day. A stronger-than-forecast report on jobs growth boosted stocks, while speculation that America will lose its top credit rating amid concern the U.S. economy is weakening sent markets tumbling. The index retreated 11 percent from July 22 through yesterday, the biggest loss over the same amount of time since March 9, 2009, when the equity bull market began.
Stocks erased losses after Reuters said the ECB is pressuring Italy to make further reforms in return for buying Italian bonds. Italy?s government will announce plans to speed up state-asset sales, liberalize the labor market and introduce a balanced-budget amendment into the country?s constitution, Sky TG24 reported today, citing unidentified officials.
European leaders are hunting for solutions to the debt crisis, helping Italy and Spain gain a respite from the market turbulence after the resumption of the ECB bond-buying program.
The ECB would be willing to buy more bonds of deficit-hit countries once they take ?concrete? steps to stabilize their finances, ECB council member Luc Coene said.
Jobs Report
U.S. stock-futures rallied before the open of regular trading after a report showed that American employers added more jobs than forecast in July and wages climbed. Payrolls rose by 117,000 workers after a 46,000 increase in June that was larger than earlier estimated, the Labor Department said today in Washington. The median estimate in a Bloomberg News survey called for a gain of 85,000. The jobless rate dropped to 9.1 percent as discouraged workers left the labor force. Average hourly earnings climbed 0.4 percent.
U.S. equities reversed gains amid speculation that S&P would downgrade the U.S. credit rating. S&P said in July there was a 50 percent chance it will downgrade the U.S. from AAA within three months.
S&P spokesman John Piecuch said in an e-mail that the ratings company would not comment on speculation the U.S. rating will be cut. Moody?s Investors Service and Fitch Ratings this week affirmed their AAA ratings on U.S. government debt.
?Psychological Damage?
?There was a lot of psychological damage on the market,? Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a telephone interview. His firm oversees $3.66 trillion as the world?s largest asset manager. ?Certainly if it were to happen, this would be one more thing to overcome for the market.?
Wall Street has never been more sure that the S&P 500 will rally in 2011, even after speculation the U.S. economy is heading for a recession prompted the biggest plunge since the bull market began.
Chief strategists at 13 banks from Barclays Plc to UBS AG see the benchmark measure of American equity surging 17 percent through Dec. 31 as of yesterday?s close, the average estimate in a Bloomberg survey. Their projection that the index will reach 1,401 hasn?t budged in four weeks.
?I?m reluctant to overreact to some shorter-term weakness, no matter how real it is, because the market has proven to be unbelievably resilient,? Jonathan Golub, the chief U.S. market strategist at UBS in New York, said in an Aug. 3 phone interview. ?If you would have been acting that way for the last two years, you would have gotten killed by this market. Companies have done an absurdly good job of managing through this environment.?
--With assistance from Whitney Kisling, Jeff Kearns, Inyoung Hwang, Victoria Taylor and Nikolaj Gammeltoft in New York and Matt Walcoff in Toronto. Editors: Jeff Sutherland, Michael P. Regan
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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