ECB Bond Buying Rescues Jobs Report Rally

Steve Schaefer
ECB Bond Buying Rescues Jobs Report Rally

Stocks seesawed in a dizzying session on Wall Street, as early cheers for an improved July jobs report were quickly drowned out by another selloff before a hopeful signal out of Europe put the market back in positive territory Friday afternoon.

With two hours to the closing bell stocks were back on the upside, thanks to a report that the European Central Bank is prepared to buy Italian and Spanish bonds in an effort to cool market fears and gain control of the debt crisis. In return, the governments of Spain and Italy would implement stricter reforms to their fiscal plans. Italian Prime Minister Silvio Berlusconi said the country would move to balance its budget by 2013, from 2014, in a speech Friday.

The Dow Jones industrial average was up 119 points to 11,503, while the S&P 500 gained 8 points to 1,208 and the lagging Nasdaq managed to turn the corner for a 2-point gain to 2,559. The session started to the upside after the Labor Department said U.S. nonfarm payrolls gained 117,000 jobs in July after a rocky June report. Those gains were quickly dashed amid a rumor that Standard & Poor’s might downgrade the U.S. credit rating and at the day’s worst levels the Dow was off almost 250 points.

The pendulum swung back in the other direction though, after Reuters reported the ECB is ready to step in and buy up debt from Spain and Italy. To date Europe’s rescue measures have been aimed only at Ireland, Portugal and Greece, an approach the market has clearly indicated will not be sufficient to keep the crisis from ensnaring southern Europe’s larger economies.

European banks with U.S.-listed American depositary receipts got a big pop on the news, with Banco Santander, Deutsche Bank, Bank of Ireland and others hitting session highs in afternoon trading.

Bank of America, which disclosed some $16.7 billion in exposure to the PIIGS in its quarterly SEC filing Thursday – but said only a small portion of that debt is sovereign and that it has bought default protection – lost 4.4% even with the broader market rallying back. (See “Bank of America Clobbered” and “BofA Braces For More Mortgage Pain.”)

U.S. Treasury yields backed up after plunging to 2011 lows this week, with the 10-year note yield up to 2.56% from the 2.45% neighborhood Thursday.