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US markets jump on EU summit news

30 Jun 2012 Evaluate

The US markets rallied on Friday, with the Dow Jones Industrial Average posting its best month of the year, after Europe agreed on steps to bolster the economies of its more troubled nations. Investors were also thrilled on encouraging business activity data and paid no heeds towards weak sentiment and consumer spending reports. The business activity unexpectedly expanded in June at a faster pace as production rebounded. The Institute for Supply Management-Chicago Inc. stated its business activity barometer increased to 52.9 from 52.7 in May. A reading of 50 is the dividing line between growth and contraction. On the other hand, the Thomson Reuters/University of Michigan final index of sentiment fell to 73.2 this month from 79.3 in May. The gauge was projected to hold at the preliminary reading of 74.1, according to the median forecast. The June decline was the first in 10 months. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009. Separately, consumer spending stalled in May as stagnant wages and slackening employment held back the biggest part of the US economy. The Commerce Department data showed US consumer spending stalled in May, with household purchases, which account for about 70 percent of the economy, unchanged after a 0.1 percent increase the previous month.

The European Union summit in Brussels had policy makers agreeing to relax repayment conditions for Spanish banks and to lower the bar to possible aid to Italy, along with proposing a $149 billion economic-growth plan for the region. After talks ended in Brussels, leaders of the 17 euro countries dropped requirements that taxpayers get preferred creditor status on aid to Spain’s banks and opened the way to recapitalize lenders directly, while relaxing conditions on potential help for Italy. The surprise agreement to offer emergency measures to stabilize the sovereign bonds of Spain and Italy, lifted the sentiment around the world and investors have now quickly shifted focus to the next meeting of the European Central Bank. The leaders agreed to a conditional lending but relaxed the demand for more austerity and also finalized to set up a region wide banking authority.

The Dow Jones Industrial Average closed higher by 277.83 points or 2.20%, at 12,880.10. The S&P 500 finished the day up by 33.12, or 2.49%, to 1,362.16 while the Nasdaq closed up by 85.56 points or 3.00%, to 2,935.05.

The Indian ADRs closed in green; Infosys was up by 2.25%, ICICI Bank up 2.00%, HDFC Bank was up 1.62%, Dr. Reddy’s Lab was up 1.42% and Sterlite Industries was up 0.50%.

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