European pledge sparks stock rally

2011-10-10 17:59

Johannesburg and New York - South African blue chip stocks booked their highest close in nearly three weeks on Monday, rising 2.4% as a pledge by German and French leaders for a speedy resolution of Europe’s debt crisis boosted confidence and drew investors back to major miners such as Impala Platinum.

The Top 40 - (Tradeable) [JSE:J200] blue chip index closed at 27 654.l48, its highest finish since September 21. The broader All Share [JSE:J203] index gained 2.1% to 30 884.70.

US stocks rallied on Monday as investor sentiment was buoyed by a pledge by German and French leaders to tackle the eurozone debt crisis.

The S&P 500 topped a key technical level for the first time in more than two months, in what could be a bullish signal.

Markets looked again to Europe for direction. German Chancellor Angela Merkel and French President Nicolas Sarkozy promised on Sunday to unveil a comprehensive new package to ease the eurozone’s debt crisis.

A move to nationalise Franco-Belgian bank Dexia was seen as an indication that governments would step in and keep large lenders from going under.

If the market perceives results could fail to stop the spread of the sovereign debt crisis beyond Greece, it could spark a new wave of selling.

“The market gave Merkel and Sarkozy the benefit of the doubt. They know they have to come up with specifics,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said the Dexia rescue showed European governments “can act quickly and decisively”, boosting hopes for real action ahead.

The Dow Jones industrial average gained 266.33 points, or 2.40%, to 11 369.45. The Standard & Poor’s 500 Index rose 32.24 points, or 2.79%, to 1 187.70. The Nasdaq Composite Index jumped 74.04 points, or 2.99%, to 2 553.39.

The benchmark S&P 500 climbed above its 50-day moving average for the first time since late July. If it holds above that level at the close, it could trigger a bullish technical signal and generate more buying in the days ahead.

Government offices and the bond market are closed for the US Columbus Day holiday and may produce a lighter than usual equities volume.