US stocks rally on encouraging data - Cisco and Travelers surge on Dow addition

US stocks rally on encouraging data - Cisco and Travelers surge on Dow addition
By Anuj Gangahar in New York
Copyright The Financial Times Limited 2009
Published: June 1 2009 14:14 | Last updated: June 1 2009 17:54
http://www.ft.com/cms/s/0/9078b782-4eac-11de-8c10-00144feabdc0.html


US stocks climbed sharply on Monday as investors took the General Motors bankruptcy filing in their stride and focused on encouraging economic data.

Before the opening bell, General Motors filed for bankruptcy and a judge ruled in favour of a sale of most of Chrysler’s assets to Italian carmaker Fiat.

President Barack Obama and GM’s chief executive Fritz Henderson sought to reassure workers, suppliers, dealers and car buyers that a leaner, reinvigorated GM would emerge quickly from a court-supervised restructuring.

GM’s bankruptcy filing occurred just hours after a US bankruptcy court judge in New York approved Chrysler’s sale of most of its assets to Fiat, the Italian carmaker.

Shares in Ford rose 5.7 per cent at $6.08 after reports said it planned to increase production in the third quarter in a bid to gain market share while its rivals were bogged down in restructuring. GM shares were suspended on the New York Stock Exchange following its bankruptcy filing.

Stocks were boosted by US manufacturing data, which was better than expected and suggested the economy was bottoming out. Separate data showed the income of Americans rose unexpectedly in April. Personal income rose at a seasonally-adjusted rate of 0.5 per cent compared with the month before, according to the Commerce Department. Income fell a revised 0.2 per cent in March from an original estimate of a fall of 0.3 per cent. Personal consumption in April fell 0.1 per cent compared with March.

At midday in New York the S&P 500 index was 2.6 per cent higher at 942.88 while the Nasdaq Composite was 2.8 per cent ahead at 1,823.83. The Dow Jones Industrial Average was 2.5 per cent higher at 8,710.45.

Analysts at Schaeffer’s Investment Research said the first five months of 2009 had behaved very similarly to the first five months of 2008, pointing out that the beginning of 2008 also featured a weak market that led to a bull market rally.

“Now with June upon us, investors need to pay particular attention. June has historically been a weak month for the market and the S&P may face some risks,” they said.

Monday’s rally came as Tim Geithner, the US Treasury secretary, arrived in China on his maiden visit, with calls for China to make its currency more flexible in return for fiscal reforms by the US.

David Buik of BGC Partners, said it would be interesting to see whether there was any pullback in equities allowing investors to take stock of the situation in the next day or two.

“Mr Geithner’s visit to China is absolutely key. The US’s borrowing requirement is breathtaking in its magnitude. He will have to sweet talk the Chinese into believing that this debt can be serviced,” he said.

Dow Jones said that GM and Citigroup would be replaced in the Dow Jones Industrial Average by technology group Cisco Systems and insurer Travelers, respectively.

Shares in both Cisco and Travelers, which was spun off from Citigroup in 2002, were sharply higher. Cisco shares climbed 4.5 per cent higher to $19.33 while Travelers shares were up 4.5 per cent at $42.49.

Oil climbed by more than $2 to a seven-month high, above $68 a barrel and energy companies gained strongly.

Exxon Mobil climbed 2.6 per cent at $71.16 and Chevron 3.2 per cent to $68.81, boosted by the strong gains in oil. The S&P energy index was up 3.6 per cent while the consumer discretionary index rose 4.4 per cent and the industrial index rose 4.5 per cent.

The financial sector was in focus as Goldman Sachs activated plans to sell up to $1.9bn worth of shares in Industrial and Commercial Bank of China in the latest high-profile divestment of stock in a mainland lender.

The S&P financial index rose 2.1 per cent while the investment banking index was 1.3 per cent higher.

The technology sector also gained although the gains lagged the wider market. Shares in Google were up 2 per cent at $425.95 and Microsoft was 1.8 per cent firmer at $21.24. Microsoft and Sony are this week launching a video-game offensive against Nintendo, the clear leader in console sales.