Wall Street Takes Off as Dollar Retreats

Wall Street Takes Off as Dollar Retreats
By JAVIER C. HERNANDEZ
Copyright by The New York Times
Published: November 23, 2009
http://www.nytimes.com/2009/11/24/business/24markets.html?hpw


Wall Street stocks were making large gains on Monday, channeling momentum from rallies in Europe and Asia and a renewed rush for gold.

And a barometer of the state of the housing market beat expectations by a wide margin, feeding optimism over the health of the broader economy. The report on existing home sales added to a surge led by commodities as investors bought up shares of energy and materials companies like Chevron and Alcoa, hoping to break a three-day losing streak.

The major indexes made huge point gains in the first few minutes of trading. At midday, the Dow Jones industrial average was up 130 points, or 1.26 percent. The wider Standard & Poor’s 500-stock index was up 1.4 percent, and the technology-dominated Nasdaq composite index increased 1.4 percent.

Wall Street seemed poised to benefit from a familiar headline on Monday: after making modest gains late last week, the dollar weakened again, falling to slightly below $1.50 against the euro.

Since the beginning of a rally in March, the weak dollar has emerged as one of the stock market’s greatest allies. Low interest rates in the United States has led many normally risk-shy traders to jettison their reservations and turn to the stock markets in hopes of high returns.

Gold, which tends to rise as the dollar weakens, reached $1,165 an ounce, a record. Oil rose almost $3 to $79.38 a barrel.

Investors responded warmly to a report by the National Association of Realtors that showed a 10.1 percent increase in sales of existing homes in October. Analysts had predicted a modest 2.3 percent increase, but a government-financed $8,000 credit for first-time home buyers helped drive up demand. Inventories also declined.

“With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer,” said Lawrence Yun, the chief economist of the National Association of Realtors.

That credit was initially set to expire later this month, causing some uncertainty in the housing market, but Congress recently extended it through April.

The renewal of the housing sector is seen as crucial to kick-starting consumer spending and turning around the broader economy.

Homes sales typically have a ricocheting effect in the economy as a whole as owners stock up on items like refrigerators, couches and televisions.

“The stronger than expected housing recovery will provide a welcome boost to consumption and employment,” researchers at Toronto-based Capital Economics wrote in a research note on Monday. “But such spill-over effects will not be large enough to prevent a prolonged period of sluggish consumer spending and labor market weakness.”

There were other items to scrutinize on Monday. The president of the Federal Reserve Bank of St. Louis, James B. Bullard, said on Sunday that the central bank should extend its mortgage-backed securities buying program beyond March, when it is set to expire. That decision would keep interest rates low and help keep the dollar weak, pleasing stock market traders.

Mr. Bullard’s remarks seemed to calm investors, coming after the president of the European Central Bank, Jean-Claude Trichet, said on Friday that it might be time for monetary policy makers to gradually reduce their cash infusions.

In Europe, the FTSE 100 in Britain rose 2.3 percent, the CAC-40 in France climbed 2.5 percent, and the DAX in Germany was up 2.7 percent. Overnight, the Hang Seng in Hong Kong rose 1.4 percent.