Stocks set to start month with big gains

August 2, 2010 7:43:24 AM PDT
Stocks are set to kick off the new month with a big gain Monday, after strong economic and earnings reports overseas added to hopes that the global recovery is picking up pace.

In the U.S. though, signs continue to point to a slowdown in growth. Investors will closely watch a key reading on the manufacturing sector from the Institute for Supply Management, due out shortly after the market opens. The ISM report is the first major economic report from July and will be closely read to see if the recent trend of slowing growth continues. The second-quarter gross domestic product reading released Friday was the latest report to show diminishing growth.

Stock trading has been erratic for months because of signs the recovery was weakening and fears that the economy would fall back into recession. But strong earnings in July helped drive stocks to their best month in a year.

The ISM's manufacturing index likely fell to 54.1 in July from 56.2 in June, according to economists polled by Thomson Reuters. Any number above 50 indicates manufacturing is growing, so even with a slowdown, manufacturing keeps expanding. That should help reduce fears about a so-called double-dip recession. The report is due out at 10 a.m. EDT.

Traders were particularly encouraged Monday about economic strength overseas. A similar manufacturing report for the 16 countries that use the euro was revised higher for July, showing the continent's economy continues to recover faster than expected.

The stock market's spring plunge was triggered by concerns that rising government debt in Europe would stagnate the region's economy and in turn affect other countries including the U.S.

European markets jumped Monday after big profit reports from banking giants HSBC and BNP Paribas provided more relief that the continent's financial sector is not being hurt by the debt problems.

Asian markets gained after Chinese manufacturing data showed growth at a pace where the government isn't likely to take steps to slow the country's economy. Strong earnings in Japan also helped Monday's global rally.

Ahead of the opening bell, Dow Jones industrial average futures rose 125, or 1.2 percent, to 10,542. Standard & Poor's 500 index futures rose 15.40, or 1.4 percent, to 1,113.70, while Nasdaq 100 index futures rose 21.25, or 1.1 percent, to 1,883.50.

Britain's FTSE 100 gained 2.1 percent, Germany's DAX index rose 1.8 percent, and France's CAC-40 rose 2.2 percent. Japan's Nikkei stock average rose 0.4 percent and Hong Kong's Hang Seng jumped 1.8 percent.

HSBC shares trading in the U.S. rose $2.70, or 5.3 percent, to $53.78 in pre-opening trading.

Monday's ISM manufacturing report is the first of several important economic reports this week. ISM reports its service sector index on Wednesday. Retailers report July monthly sales on Thursday. And the Labor Department then releases its monthly employment report Friday, which is considered the most important report of the month.

High unemployment remains a major obstacle to a stronger recovery in the U.S. So investors will want to see signs that companies that just reported big earnings for the second quarter are using that money to hire new employees.

With investors jumping back into riskier stocks, bond prices fell Monday. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.94 percent from 2.91 percent late Friday. Its yield is often used as a benchmark to set interest rates on mortgages and other consumer loans.


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