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China and Buffett boost rally on Wall St., oil jumps

Published 08/10/2015, 01:39 PM
Updated 08/10/2015, 01:39 PM
© Reuters. Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York

By Noel Randewich

SAN FRANCISCO (Reuters) - Wall Street surged Monday following a multi-billion-dollar deal by Warren Buffett's Berkshire Hathaway (NYSE:BRKa) that raised optimism over mergers and acquisitions, and weak Chinese data that boosted hopes for fresh stimulus in the world's No. 2 economy.

Crude oil prices jumped as much as 3 percent after a rally in U.S. gasoline and diesel due to a refinery outage helped crude futures rebound from multi-month lows earlier in the session.

All three major U.S. stock indices jumped more than 1 percent after a $37.2 billion deal by Berkshire Hathaway to buy Precision Castparts (NYSE:PCP) showed the M&A boom was alive and well.

Global stock markets also got a lift from hopes that Beijing might take new measures to stimulate the Chinese economy after a report that producer prices in July hit their lowest point since late 2009 and exports tumbled 8.3 percent in the same month.

Expectations of possible restructuring among major shipping firms and in other key sectors helped boost recently battered Chinese stock indices by more than 4 percent.

"The market took their cues from China overnight and the Berkshire deal in another factor driving investor sentiment today," said Aaron Clark, a portfolio manager at GW&K Investment Management, which oversees about $25 billion.

RATE RISE TIMING

The outlook in China contrasted with solid U.S. jobs data on Friday, which bolstered expectations that U.S. interest rates would rise as early as September.

The dollar (DXY) slipped 0.44 percent against a basket of currencies after hitting a four-month high last week.

On Monday, Atlanta Fed President Dennis Lockhart said a decision to raise interest rates should come soon while separate comments by Fed Vice Chairman Stanley Fischer stoked some new uncertainty about the timing.

Ten-year U.S. Treasury yields (US10YT=RR) were five basis point higher at 2.2251 percent.

"U.S. yields are modestly higher, but dollar/yen needs more widening of the interest rate spread to take it higher," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

Wall Street bounced back after losses last week. The Dow Jones industrial average (DJI) jumped 1.26 percent to 17,592.52 and the S&P 500 (SPX) surged 1.16 percent to 2,101.7. The Nasdaq Composite (IXIC) added 1.08 percent to 5,097.98.

Crude oil prices rebounded from lows earlier in the session after a rally in U.S. gasoline and diesel due to a refinery outage. [O/R]

Brent crude was up 3 percent, at $50.08 a barrel and U.S. crude was up 2 percent to $44.79 per barrel. Both benchmarks have dropped for six weeks amid a supply glut.

FLURRY OF DEALS

As the Fed has kept rates near zero for nearly a decade, debt has been cheap, leading to a rise in merger and acquisition activity.

July was the seventh strongest month for global deal activity since 1980, according to Thomson Reuters data, showing a hunger for acquisitions as the Fed prepares to hike rates.

Through the end of July, cross-border M&A activity totaled $913.5 billion, up 23 percent from a year ago.

"The M&A environment is ripe for more deals and at the end of the year, you will see a lot more deals than what we saw last year," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

The MSCI All-Country World index (MIWD00000PUS), which tracks shares in 45 nations, was up 1.1 percent.

Euro zone equities rose after a survey showed investor and analyst sentiment weakened only slightly in August, suggesting a relatively robust economic recovery. Major financial shares got a lift from broker upgrades.

© Reuters. Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York

There was also some optimism over Greece, where an official said banks could get a first capital injection soon after a bailout deal is agreed, even before the ECB completes a stress test.

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