US housing data lifts world markets out of their stupor after muted stress tests reaction

US housing data give sluggish markets a lift

LONDON — Strong U.S. housing data gave stocks a lift Monday after lackluster trading earlier in the day, as investors continued to grapple with the results of stress test into 91 EU banks.

In Europe, the FTSE 100 index of leading British shares was up 20 points, or 0.4 percent, at 5,332.62 while Germany’s DAX rose 12.58 points, or 0.2 percent, to 6,178.92 points. The CAC-40 in France was up 14.99 points, or 0.4 percent, at 3,622.04.

On Wall Street, the Dow Jones industrial average was up 60.062 points, or 0.6 percent, at 10,485.24 soon after the open while the broader Standard & Poor’s 500 index rose 6.61 points, or 0.6 percent, to 1,109.27.

European and U.S. stocks had been trading flat until figures from the Commerce Department showed new home sales in the U.S. jumped a massive 23.6 percent in June to an annual rate of 330,000. That was the biggest increase since 1980 and outstripped market expectations, although the figure for May was revised down sharply.

“Early trading in the States was static until the better than expected new home sales figures came in,” said Chris Purdy, a financial trader at Spreadex.

The latest figures helped shore up confidence about the U.S. housing market after a raft of data pointed to renewed weakness — the property market was one of the main reasons behind the global recession and the financial crisis.

The figures also helped shake markets out of the stupor that had gripped them earlier in the day. The main point of interest was how traders would respond to the release of the stress test results, published after the markets closed last Friday.

The response was mixed — though the simulations gave a broadly positive view of the region’s financial sector, a number of analysts question their rigor.

On the surface, the results showed that Europe’s banking sector is strong enough to deal with any future economic and financial shocks — the Committee of European Banking Supervisors said only seven banks failed the tests and only needed to shore up their finances by $4.5 billion.

However, both the number of banks failing and the capital shortfall identified were lower than most expectations in the markets, raising questions over the credibility of the whole exercise. Crucial for those dismissing the results as a whitewash was the fact there was no test for a potential Greek debt default.

“Depending on your point of view you can regard the tests as some sort of ‘milestone’ which puts the eurozone banking crisis to bed and is therefore positive for markets, or you can take the view that the tests were simply ‘political whitewash’ that doesn’t resolve funding and capital needs, issues of counterparty risk and the possibility of eventual debt restructuring/default,” said Neil MacKinnon, global macro strategist at VTB Capital.

It will take a while for the real impact of the stress tests to be felt and the hope among policymakers is that the banks will now be able to access liquidity more easily in the money markets, instead of relying, as many European banks do, on the European Central Bank.

“We still cannot say with high conviction post stress tests that the European banking system is in fine health as we are not convinced that the tests were tough enough,” said Nic Clarke, an analyst at Charles Stanley stockbrokers.

Stress tests are not the only thing occupying traders’ minds.

Reports that Tony Hayward is to quit his job at the helm of BP PLC following the oil spill disaster in the Gulf of Mexico have helped the oil company’s shares rise 2 percent in morning trading in London.

“Ever since Hayward told the media he wanted his life back it seems that he had been a dead man walking, and the task now begins of not only cleaning up the affected area in the gulf but also the much more arduous task of cleaning up the company’s reputation,” said James Hughes, market analyst at CMC Markets.

Earlier in Asia, Japan’s Nikkei 225 index rose 0.8 percent to 9,503.66 after a report showing exports from the world’s No. 2 economy rose for the seventh straight month in June.

South Korea’s Kospi added 0.6 percent to 1,769.07 after figures showed the country’s economic growth over the last year was a hefty 7 percent.

Australia’s S&P/ASX 200 rose 0.6 percent to 4,486.10.

Elsewhere, Hong Kong’s Hang Seng gained 0.1 percent to 20,839.91, and markets in Taiwan, New Zealand and Thailand also advanced. China’s Shanghai Composite Index reversed course and finished up 0.7 percent to 2,588.68.

Meanwhile, the dollar was down 0.2 percent at 87.35 yen while the euro rose 0.3 percent to $1.2945.

Benchmark crude for September delivery was down 19 cents at $78.79 a barrel in electronic trading on the New York Mercantile Exchange.

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Associated Press Writer Pamela Sampson in Singapore contributed to this report.