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US: Stocks soar 1.5% after ECB embarks on bond purchases

Friday, January 23, 2015 - 06:24
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[NEW YORK] US stocks soared after the European Central Bank announced a huge bond-buying stimulus program Thursday, with banks and big tech stocks leading the way helped by a sharply higher dollar.

Rumors that Google is interested in buying Twitter - which could portend one of the largest-ever mergers in tech stocks - also fed the buying frenzy.

The Dow Jones Industrial Average was up 259.70 points (1.48 per cent) at 17,813.98.

The S&P 500 surged 31.03 (1.53 per cent) to 2,063.15, while the tech-heavy Nasdaq Composite jumped 82.98 (1.78 per cent) to 4,750.40.

It was the fourth straight day of gains for Wall Street, a streak that erased losses that had mounted from the beginning of the new year.

The spark for Thursday's buying was ECB chief Mario Draghi's announcement of a 60 billion euro-a-month (US$69 billion) bond-buying programme through at least September 2016 aimed at sparking more investment and growth in the eurozone.

The announcement sent the euro down more than two per cent against the dollar while boosting stocks across Europe.

The market appreciates the fact that the ECB has announced a programme that is better than expected, said Peter Cardillo of Rockwell Global Capital.

"We had expected something around 50 billion euros a month." "The ECB's actions will increase liquidity in the economy by giving bond holders liquid cash in place of less liquid bonds," said Carl Weinberg, chief economist at High Frequency Economics.

"What happens to this liquidity will determine the outcome of this exercise. It could go into stocks or bonds, or housing... or be spent on Blu-rays and cars." US blue chips were clearly beneficiaries. Bank stocks soared: Citigroup (+3.8 per cent) Morgan Stanley (2.3 per cent), Bank of America (4.4 per cent), JPMorgan Chase (+3.0 per cent) and Goldman Sachs (2.8 per cent).

American Express though was a standout loser, dropping 3.8 per cent despite a solid fourth quarter, with investors apparently spooked by a rise in expenses and provisions. The bank and credit card issuer said it would lay off 4,000 workers to cut costs.

In top tech stocks, Apple added 2.6 per cent, eBay soared 7.1 per cent helped by strong earnings, Amazon picked up 4.4 per cent and Microsoft 2.6 per cent.

Google made no comments on rumors it wants to buy Twitter, but the news sent Google up 3.2 per cent and Twitter 3.3 per cent.

Several airlines picked up on good quarterly reports and improved forecasts for 2015: United Continental (+4.5 per cent), Southwest (+8.4 per cent) and Alaska (4.6 per cent). Overall the sector gained 6.3 per cent.

Bond prices fell. The yield on the 10-year US Treasury rose to 1.90 per cent from 1.85 per cent Wednesday, while the 30-year jumped to 2.47 per cent from 2.44 per cent.

AFP