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Question of the Day
NEW YORK — It was the buy signal that markets were waiting for.
The Dow Jones industrial average on Thursday jumped 212 points, or 1.7 percent, to 12,888 following big gains in European markets. Benchmark stock indexes in Spain and Italy surged 6 percent and 4 percent in France.
Draghi’s comments at an investor conference at the Olympics raised hopes that Europe’s central bank might intervene to bring down the cripplingly high borrowing costs for struggling European countries like Spain and Italy.
After insisting for months that it was up to European governments to restore confidence in the currency shared by 17 nations there, Draghi pledged that “the ECB is ready to do whatever it takes to preserve the euro.”
That commitment gave a big boost to global markets. “The No. 1 problem in the world now is Europe’s finances,” John Fox, director of research at Fenimore Asset Management, said. “When the head of the ECB comes out and says he’s willing to do anything, that’s code for ‘We are going to agree to resolve this issue.’ “
In other signs that investors were becoming more confident that Europe’s financial crisis would not spin out of control, borrowing costs for Spain and Italy fell sharply, the euro surged a penny to $1.23 against the dollar and the yield on the 10-year Treasury note rose to 1.43 percent from 1.40 percent late Wednesday. Investors tend to sell low-risk assets like Treasurys when they’re less fearful about global markets and the economy.
“Close to 20 percent of the S&P 500 companies’ revenues comes from Europe,” said Lawrence Creatura, portfolio manager at Federated Investors. “We’re in a global, interconnected economy and Europe’s troubles are our own today.”
The broader the Standard & Poor’s 500 index rose for the first time in five days. It was up 22.13 points, or 1.7 percent, to 1,360.02 The gains in the U.S. stock market were broad. All 10 of the industry groups in the S&P 500 index rose, led by telecommunications companies.
In other trading, and the Nasdaq composite index rose 39.01 points, or 1.4 percent, to 2,893.25, despite more disappointing news from technology companies including the online game maker Zynga.
Several U.S. companies were also rising sharply after reporting stronger earnings. Sprint Nextel jumped 68 cents, or 20 percent, to $4.05. The country’s third-largest wireless carrier was successful in convincing smartphone subscribers to pay up for “unlimited data” service, and its service revenue zoomed higher, beating analysts’ estimates.
In Europe, Draghi’s comments came after days of uncertainty in Europe and rising concern over Spain’s recession and the country’s banks, which are reeling following the implosion of a real estate bubble. As borrowing costs for both Spain and Italy rose in the past week, investors feared that both countries might need to be rescued, like Greece, Portugal and Ireland had been in the last two years.
The yield on Spain’s benchmark 10-year bond dropped almost half a percentage point, a huge move, to 6.89 percent. That rate surged as high as 7.54 percent this week as investors dumped the country’s bonds and lost confidence in Spain’s ability to manage its debts.
By Matt Kibbe
The short-term deal will assure long-term overspending
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