Stocks up on hopes policy makers will act on crisis

Dow Jones:10,771.48 (+37.65) Nasdaq:2,483.23 (+27.56) S&P 500:1,136.43 (+6.87)

US STOCKS rose yesterday, following a four-day rout that erased $1.1 trillion in value, amid speculation policy makers will act to avoid a financial crisis.

“Policy is viewed as inept, inert and basically out of bullets,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, wrote in an e-mail. “If there was a good policy response, we could see the stock market rally 10 per cent very quickly.”

The S&P 500 has fallen 6.7 per cent this week.

Stocks rose yesterday as European governments are exploring speeding the setup of a permanent rescue fund, an internal working paper shows. Drawing on paid-in capital, the fund will wield a €500 billion ($677 billion) war chest that could help shield countries like Italy. It also includes provisions for sharing costs with bondholders for countries with “unsustainable” debt.

The buyback of Greek debt, part of the nation’s second bailout, should be broad-based and occur at the same time as a bond swap now being negotiated, a European Union planning document stated.

The European Central Bank may step up efforts to boost growth and ease financial-market tensions as early as next month, governing council members said.

“There was a mention that if things continue to deteriorate in Europe that there would be a policy announcement, a pro-active response,” said Peter Kenny, managing director in institutional sales at Knight Capital Group in Jersey City, New Jersey.

The KBW Bank Index rallied 1 per cent.

Bank of America advanced 3.8 per cent to $6.29. The lender is in talks to sell its stake in NPC International, the biggest US Pizza Hut franchisee, for more than $800 million. The lender also agreed to sell about $880 million in commercial mortgages at a discount of as much as 25 per cent.

Home Depot gained 1.8 per cent to $33.64. Intel added 2.5 per cent to $22.16.

Hewlett-Packard fell 3.5 per cent to $22. The world’s largest personal-computer maker repl-aced CEO Leo Apotheker with Meg Whitman, asking the former head of eBay to turn around a computer maker plagued by slowing growth and management missteps. – (Bloomberg)