Stocks shook off early declines on Tuesday and ended the day with big gains after a report suggested that France and Germany had agreed to boost the European bailout fund more than fourfold, to €2-trillion.
The Dow Jones industrial average closed at 11,577.05, up 180.05 points, or 1.6 per cent – marking a 281-point reversal from its morning low. The broader S&P 500 closed at 1,225.38, up 24.52 points, or 2 per cent. In Canada, the S&P/TSX composite index closed at 12,053.11, up 130.07 points, or 1.1 per cent – or nearly a 300-point reversal.
The day had begun on a lacklustre note as investors digested a disappointing earnings report from International Business Machines Corp., mixed earnings from Bank of America Corp. and Goldman Sachs Group Inc. and slowing economic growth in China in third quarter.
IBM ended the day down 4.1 per cent, but it was one of just two declining stocks within the Dow as investors grabbed economically sensitive stocks in particular in afternoon trading.
The banks were especially strong, even as accounting rules boosted Bank of America’s earnings and Goldman Sachs reported the second quarterly loss in its history as a publicly traded company. Bank of America rose 10.1 per cent and Goldman Sachs rose 5.5 per cent. Other banks joined the rally, with JPMorgan Chase & Co. rising 5.9 per cent.
Home builders were also strong after the National Association of Home Builder sentiment index rose above expectations in October, in an early signal of an improved outlook for activity. Pulte Group Inc. rose 11.2 per cent and DR Horton rose 11 per cent.
Meanwhile, the news from Europe lifted sentiment elsewhere in the market, with European leaders apparently coming together over the need – stressed by Bank of Canada Governor Mark Carney on Monday – for a bigger bailout fund to help deal with the debt crisis.
The price of crude oil, which had been drifting in early trading, rose to $88.34 (U.S.) a barrel, up $1.96. That boosted energy stocks: Suncor Energy Inc. rose 2.8 per cent. Other commodity producers showed strong gains as well, on hopes for a improved global economic outlook. Teck Resources Ltd. rose 1.9 per cent.
Canadian railway stocks also surged, with Canadian Pacific Railway Ltd. rising 4.9 per cent.
Research In Motion Ltd. rose 3 per cent after the company unveiled a new platform for its next generation of BlackBerry devices at a developers conference in San Francisco.
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