U.S. Stocks Advance as Concern Over Europe’s Debt Crisis Eases

Bloomberg News

U.S. stocks advanced, snapping a three-day decline in the Standard & Poor’s 500 Index, as European officials took steps to protect Spanish banks.

Bank of America Corp. and Citigroup Inc. increased at least 1.1% as Spanish bond yields fell. Alcoa Inc., the largest U.S. aluminum producer, lost 1.7% after reporting second- quarter results. Applied Materials Inc. tumbled 2.5% after cutting its forecasts. Advanced Micro Devices Inc., the second-biggest maker of processors for personal computers, slumped 6.2% after reporting an unexpected decline in sales.

The S&P; 500 rose 0.5% to 1,359.06 at 9:51 a.m. New York time. The Dow Jones Industrial Average added 65.17 points, or 0.5%, to 12,801.46. Trading in S&P; 500 companies was 8.2% above the 30-day average at this time of day.

“Whenever we see the European bond yields lower, our market is going to get a boost,” said John Augustine, who manages $25 billion as chief market strategist at Cincinnati- based Fifth Third Bank. “Anything to get some equity into the banking system is a good thing.”

Equities advanced as European governments will jump-start as much as 100 billion euros ($123 billion) in emergency loans to shore up Spain’s banks and may move the costs off the Spanish government’s balance sheet. Finance chiefs agreed to make available 30 billion euros by the end of this month. The goal is to eventually use the euro-area bailout fund to recapitalize banks directly instead of saddling the government with debt.

Investors are also gauging the impact of Europe’s crisis on corporate earnings. Profits for S&P; 500 companies fell 1.8% in the second quarter, according to analyst estimates compiled by Bloomberg. That would be the first drop since 2009.

Stocks fell for a third day Monday after a jump in Spanish bond yields above 7% intensified concern about Europe’s crisis and as investors awaited Alcoa’s results.

Alcoa, the first company in the Dow to report results, dropped 1.7% to $8.61. Chief Executive Officer Klaus Kleinfeld reiterated Alcoa’s forecast for global aluminum demand to rise 7% this year and exceed supply. The units that make the metal for customers such as Boeing Co. and Ford Motor Co. have seen higher profitability, helping to counter the weaker performance of its aluminum-smelting business.

Financial companies gained as a measure of European lenders added 1.6%. Bank of America increased 1.1% to $7.64. Citigroup rose 1.5% to $26.49. Morgan Stanley advanced 0.9% to $14.06.

Applied Materials tumbled 2.5% to $10.73. It’s seeing weaker demand from its foundry customers, manufacturers that build chips for other companies. Investors and analysts track semiconductor-equipment orders as a harbinger of demand for the broader electronics industry.

AMD slumped 6.2% to $5.27. Demand for its products is being hurt by slower growth in China and a worsening economic climate in Europe. The chipmaker is also suffering as consumers shun PCs in favor of tablets, which rely on semiconductors made by other companies. AMD’s sales drop may be a harbinger of disappointing results at peers, such as Intel Corp., said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co.

Reluctance among U.S. companies to push earnings estimates higher in the second quarter indicated the period’s results may be disappointing, according to Pierre Lapointe, Brockhouse & Cooper Inc.’s global macro strategist.

Only 19 companies made profit projections last month that beat analysts’ average estimate, according to data compiled by Bloomberg and summarized by Brockhouse in a July 5 report. The total was the lowest for any June since the figures were first compiled in 2000 and the second-lowest for any month after the 14 last September.

“Investors did not get many indications from companies on the strength of earnings,” Lapointe, who is based in Montreal, wrote with colleagues Alex Bellefleur and Frances Donald. “The risk is that we will get more earnings misses than usual.”