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Stocks rise on hopes US will avoid fiscal cliff

Matthew Brown and Richard Frost London

STOCKS around the world snapped the longest losing streak in almost a year on optimism a deal can be reached to avoid automatic US spending cuts and tax increases. Oil led commodities higher, while the dollar and treasuries fell.

The MSCI All-Country World index advanced 0.7 percent as of 7.35am in New York, ending an eight-day decline.

The Stoxx Europe 600 index (Stoxx 600) climbed 1.2 percent, and Standard & Poor’s 500 index futures added 0.6 percent.

Oil increased 1.2 percent in New York and copper gained 1.3 percent in London. Treasury 10-year yields rose three basis points to 1.61 percent. The dollar weakened against all of its 16 major counterparts.

House speaker John Boehner and White House press secretary Jay Carney described a meeting on Friday on the so-called financial cliff as “constructive”. European finance ministers are due to meet in Brussels today as they aim to craft a plan for Greece’s next aid payout.

“This is good news and a relief for the market,” said Bruno Ducros at CamGestion in Paris. “If we apply the automatic tax increases and spending cuts, there is risk of a very strong slowdown in the US. No one wants to take responsibility for a major crisis in the US.”

The Stoxx 600 rebounded from the biggest weekly drop in five months as all 19 industry groups advanced.

BP rallied 2.6 percent after the Sunday Times reported that the oil company was planning a £3.7 billion (R52bn) buyback. HSBC Holdings also gained 2.6 percent in London after saying it was in talks to sell a stake in China’s Ping An Insurance.

SAS jumped 25 percent after the Swedish airline won the backing of unions representing pilots and most of its cabin crew for plans to eliminate jobs and shrink the business.

Fugro plummeted 23 percent, the biggest drop since 2003, after the Dutch oil-services firm cut its forecasts and said chief executive Arnold Steenbakker would leave.

Cisco increased 1.2 percent in German trading after the manufacturer of computer networking equipment agreed to pay $1.2bn (R10.6bn) for closely-held Meraki.

The S&P 500 index rose 0.5 percent on Friday, the first increase in four days, after Boehner said talks with President Barack Obama were constructive and he would accept a rise in government revenue if coupled with spending cuts.

“I am confident we can get our fiscal situation dealt with,” Obama said in Bangkok yesterday, spurring optimism legislators would reach an agreement to avoid a $607bn deficit-cutting package, known as the fiscal cliff.

The dollar index fell 0.3 percent, the most in almost two weeks. The US currency weakened 0.2 percent to $1.2766 a euro and fell 0.2 percent to ¥81.14 (R9). The Australian dollar rose 0.5 percent to $1.0392. The won strengthened 0.5 percent to 1 086.98 a dollar.

European finance chiefs are due to meet in Brussels today for the second time in a week after they agreed last week to keep Greece’s bailout aid flowing. In addition to a disagreement between the EU and International Monetary Fund over softening Greece’s debt target, the ministers will attempt to re-engineer the current bailout without asking taxpayers for more money.

Greek 10-year bonds rose for a seventh consecutive day, pushing the yield down 25 basis points to 17.22 percent.

The cost of insuring against default on European corporate debt fell the most in a month, with the Markit iTraxx Crossover index of credit default swaps linked to 50 mostly junk-rated companies dropping 24.5 basis points to 542.5 basis points. – Bloomberg

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