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Stocks rise for third day on optimism about Europe
Question of the Day
NEW YORK — U.S. and European stocks rose broadly Tuesday on hopes that Europe was moving closer to resolving its debt crisis, though the Dow Jones industrial average closed up only by 147 points, giving up about half of its gains from earlier in the day.
German Chancellor Angela Merkel said her country would do whatever it could to help Greece regain investors' confidence and Greece's finance minister also said that country would receive the next round of bailout loans in time to avoid a default that could have happened by mid-October if it did not receive the funds.
"Europeans are finally starting to understand that they need to act with some force to get ahead of the European debt crisis," said John Briggs, a fixed-income strategist at RBS.
The Dow rose 146.83 points, or 1.3 percent, to close at 11,190.69, after having been up as many as 325 points earlier in the day. The Dow has added 419 points over the last two days, making up more than half of its 737-point plunge last week.
The Standard & Poor's 500 index rose 12.43, or 1.1 percent, to 1,175.38, with materials stocks leading the way. The Nasdaq composite rose 30.14, or 1.2 percent, to 2,546.83.
European markets also closed sharply higher. Germany's DAX rose 5.3 percent, and France's CAC-40 rose 5.7 percent. Britain's FTSE 100 rose 4 percent.
The encouraging signs from Europe also sent commodities prices higher. Investors fear that a blowup in Europe's debt crisis could drag down economic growth across the globe. That would reduce demand for raw materials such as crude oil and copper.
The U.S. gains were broad, with five stocks rising for every one that fell on the New York Stock Exchange. All 10 company groups that make up the Standard & Poor's 500 index rose. Small companies rose more than larger ones, a sign that investors were moving money into riskier investments. The Russell 2000 index, a benchmark for small-cap stocks, rose 2.2 percent.
But analysts cautioned that even a small dose of bad news from Europe or the U.S. economy could push stocks right back down again.
"This is a news, rumor-driven rally," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "This is still a very, very risky market."
That was evident late in the day when the Financial Times reported that a split had emerged among European leaders over the bailout terms for Greece's debt. The Dow had been up nearly 300 points shortly before FT published the report on its website at 2:48 p.m. Within an hour, those gains faded.
Worries about Europe have weighed on the stock market for months. The S&P 500, a benchmark for many U.S. mutual funds, has fallen 13 percent since July 22, shortly after spiking yields on Italian and Spanish bonds brought fears that the region's debt crisis could spread beyond peripheral countries like Greece and Ireland.
Analysts say more needs to be done to fight Europe's debt crisis. Finance ministers have been pushing to increase the size of Europe's rescue fund. Economists also want the European Central Bank to lower interest rates to help spur the economy.
By Tom Harris and Madhav Khandekar
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