US stocks surge as oil prices fall

Source: AFD

US stocks closed in positive territory on Tuesday as oil prices fell sharply from last week's record highs above 135 dollars a barrel, providing a respite to rising inflation concerns.

The Dow Jones Industrial Average advanced 68.72 points (0.55 percent) to close at 12,548.35 and the tech-dominated Nasdaq composite climbed 36.57 points (1.50 percent) to 2,481.24.

The broad market Standard & Poor's 500 index rose 9.42 points (0.68 percent) to finish at 1,385.35.

The stock market was closed on Monday for a public holiday.

"The drop in oil prices boosted shares of consumer companies," said Al Goldman, chief market strategist at Wachovia Securities.

Oil prices tumbled in profit taking amid growing concerns about US energy demand as the world's largest economy wallows in a housing crisis, tight credit and higher energy and food prices.

New York's main oil futures contract, light sweet crude for July delivery, closed 3.34 dollars lower and London's Brent North Sea crude for July lost 4.06 dollars, according to closing figures of 128 dollars.

Analysts said a survey showing plummeting consumer confidence and a
separate report showing the housing market remains in a rut triggered fresh
concerns about growth momentum.

The economy has stalled to a scant 0.6 percent growth pace in the past two quarters. The government is due to release its revised first-quarter growth estimate on Thursday.

The Commerce Department said sales of new homes in the United States rose 3.3 percent in April from the prior month, confounding market expectations of a decline.

"The market reaction to the new-home sales data has been positive, which is understandable given how depressed expectations were ahead of the report," Briefing.com analysts wrote in a client note.

But The Conference Board's consumer confidence index reading fell to a 16-year low in May.

The business research firm's monthly survey is seen as a gauge of future consumer spending, the driver of two-thirds of US economic activity.

"Consumers' inflation expectations, fuelled by increasing (gasoline) prices at the pump, are now at an all-time high and are likely to rise further in the months ahead," said Lynn Franco, director of The Conference Board consumer research centre.

The expectations index, a component of the index, suggests "little likelihood of a turnaround in the immediate months ahead," she said.

Among stocks in focus, JPMorgan Chase rose 1.63 percent to 43.01 dollars. The investment bank said it would end its global payments joint venture with First Data, Chase Paymentech Solutions, by the end of the year.

Bank of America added 0.71 percent to 34.17. The big US bank said it was raising its stake in Chinese bank China Construction Bank through a 1.86-billion dollar investment.

Airline stocks soared, with a tumble in crude oil prices helping to fuel gains. AMR Corp., the parent of American Airlines, rallied 8.23 percent to 6.84; Delta Air Lines surged 5.92 percent to 7.64; and Continental Airlines lifted 4.93 percent to 13.83.

The bond market weakened. The yield on the 10-year Treasury bond rose to 3.921 percent from 3.831 percent on Friday, and that on the 30-year bond climbed to 4.645 percent from 4.557 percent. Bond prices and yields move in opposite directions.