Dow jumps 287 on hopes for Europe fix

Updated: 9 p.m. ET

Stocks soared to their biggest gains of the year today after the European Central Bank hinted it may cut its key interest rate in the next few months and reports suggested the Federal Reserve may engage in more easing to boost the domestic economy.

The Dow Jones industrials ($INDU) finished up more than 280 points. The blue chips have also moved back into the black for 2012. The Standard & Poor's 500 Index ($INX) also enjoyed its biggest gain of the year. The Nasdaq Composite Index ($COMPX) was higher for the third straight day. 

At the same time, the Federal Reserve's Beige Book, released this afternoon, painted a a more optimistic view of the economy than last week's jobs report, with regional economies seeing solid auto and retail sales and even some strength in housing. Throughout the report, growth is described as moderate or modest. There were concerns that a slowdown in Europe and domestic political uncertainty may affect future business conditions.

The rally pushed up interest rates as money was pulled away from bonds and as the dollar moved lower against the euro and British pound. Crude oil (-CL) in New York settled up 73 cents to $85.02 a barrel. Brent, the benchmark North Sea crude, was at $100.86 a barrel, up $2.012. Gold (-GC) settled up $17.30 to $1,634.20 an ounce.

The Dow finished up 287 points to 12,415, its second gain in a row. Not only is the gain the Dow's biggest of the year, it's the largest since Dec. 22 when the blue chips jumped 337 points. The S&P 500 gained 30 points to 1,315. It was the first time the index has been above 1,300 since Friday's ugly sell-off. The Nasdaq jumped 67 points to 2,845, coming up just short of achieving its largest gain of the year.

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The Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, was up 59 points to 2,546, its second-best day of the year after a 67-point gain on May 21. Apple (AAPL), which is the biggest influence on the index, was up $8.63 to $571.46, adding 7.2 points to the index by itself.

Gains for Microsoft (MSFT), Oracle (ORCL), Google (GOOG), Intel (INTC) and Cisco Systems (CSCO) contributed an additional 18 points to the index's gain. (Microsoft is the publisher of MSN Money.)

A broad rally but light volume
The rally was broad, with all 30 Dow stocks showing gains, along with 97 Nasdaq-100 stocks and 487 S&P 500 stocks. Energy, financial and materials stocks were the strongest sectors of the S&P 500; all 10 sectors were higher overall.

Volume was light, however. New York Stock Exchange volume was just 862 million shares.

The result of today's rally is this: The Dow finished the day up 1.6% for the year after seeing all its 2012 gains disappear by Friday. The S&P 500 is up 4.6%, and the Nasdaq is up 9.2%.

The pain since the market started to peak at the end of March is still real. The Dow remains 6.5% below its May 1 closing high, while the S&P 500 is off 7.5% from its peak on April 2, while the Nasdaq is off 8.9%.

Most of the losses have come as investors have worried that Europe's financial system was in grave danger and as evidence suggested that the U.S. recovery was losing steam.

While the hints from Europe and the Fed were probably the biggest factors pushing the rally, there were some who thought Gov. Scott Walker's win in the Wisconsin recall election also played a role.

Thursday's market faces the weekly report on jobless claims and Fed Chairman Ben Bernanke's testimony before the Joint Economic Committee.

Energy prices -- New York close
			Wed.			Tues.			Month chg.			YTD chg.
Crude oil (-CL)			$85.02			$84.29			-1.75%			-13.97%
(per barrel)
Heating oil (-HO)			$2.6717			$2.6336			-1.17%			-8.32%
(per gallon)
Natural gas (-NG)			$2.4210			$2.4460			-0.04%			-19.00%
(per mil. BTU)
Unleaded gasoline (-RB)			$2.6903			$2.6847			-1.19%			1.24%
(per gallon)
Brent crude			$100.64			$98.84			-1.21%			-6.28%
(per barrel)
Retail gasoline			$3.5650			$3.5700			-1.52%			8.82%
(per gallon; AAA)

Disk-drive makers, builders lead the market
Homebuilding stocks were among the biggest winners after luxury builder Hovnanian (HOV) said it sold more houses in April than in any month since the spring of 2006 and turned a profit in the fiscal second quarter when Wall Street was expecting a loss. Hovnanian shares were up 31 cents to $2.01.

The Philadelphia Housing Sector Index ($HGX) was up 4.01 to 120.11 and remains up 16.7% for the year.

Home Depot (HD) was up $1.68 to $50.60 after it reaffirmed fiscal earnings guidance at its annual analyst meeting.

Disk-drive makers were the strongest group, with the NYSE Arca Disk Drive Index ($DDX) up 3.95 to 101.40. Seagate Technology (STX) rose $1.07 to $23.67.

Energy and financial stocks were the leading sectors of the S&P 500; all were up at least 1% on the day.

Bank of America (BAC), United Technologies (UTX) and Caterpillar (CAT) were the top Dow percentage gainers.

More than 124 points of the Dow's gain came from five stocks: IBM (IBM), Chevron (CVX),  Caterpillar, United Technologies and Exxon Mobil (XOM). All derive large shares of their revenue from Europe.

Morgan Stanley (MS), up $1.08 to $13.94, and Bank of America, up 54 cents to $7.64, were the second- and third-best S&P 500 performer behind information-storage company Iron Mountain (IRM), up $3.92 to $32.32.

Facebook (FB) was up 94 cents to $26.81. One reason for the gain was an upgrade from analyst Mark Harding of JMP Securities. He thinks the huge user base offers huge opportunities for profits.

But the stock is still off 29% from $38, where its initial public offering was priced.

At the same time, the Nasdaq OMX Group (NDAQ) proposed a "one-time" payout of around $40 million to compensate some financial firms that lost money after the exchange operator botched their trades during Facebook's initial public offering. Shares rose 38 cents to $22.24.

ECB hints at a rate cut
What's not clear is if the gains for the market since Friday are a relief rally or something more powerful. By many measures, the downdraft that began in April had pushed stocks down so far that a rebound was inevitable.

The immediate catalyst for today's rally came from the European Central Bank, which held its base rate at 1%. That was expected, but ECB President Mario Draghi conceded that several members of his board wanted to cut rates now. Moreover, Draghi said European growth was weakening in the second quarter and there were "downside risks" to the eurozone's economic growth.

Many analysts took that as a signal the ECB may well cut rates. IHS Global Insight economist Howard Archer predicted the rate will be cut to 0.75% in July.

The ECB and Europe are facing serious disruptions. Greece's government said it could run out of cash by July because of declining tax revenues caused by the country's depression and widespread tax evasion.

Spain's banks are facing collapse as depositors move their money to banks elsewhere in Europe. The big fear is a full-fledged bank run, in part because Spain doesn't have a strong system of deposit insurance.

Meanwhile, the Federal Reserve was at least thinking about a possible move to stimulate the U.S. economy, The Wall Street Journal said. But the critical question was if the economy has deteriorated enough to warrant a move. There are deep divisions, especially among presidents of the 12 regional Federal Reserve banks, on whether something is needed now.

No matter. Just the thought that the Fed might be thinking about more quantitative easing was enough to cheer Wall Street.

While the Beige Book said hiring was "steady," a Labor Department report last week showed that employers added 69,000 workers to payrolls in May, less than half the median estimate in a Bloomberg survey of economists and down from 275,000 in January.

"We’re getting a lot of conflicting information here, and that usually means reality is somewhere in the middle," Diane Swonk, chief economist for Mesirow Financial in Chicago, told Bloomberg Radio.

Today’s Beige Book reflects information collected on or before May 25 and summarized by the Dallas Fed.

Short hits from the markets -- New York close
			Wed.			Tues.			Month chg.			YTD chg.
Treasury yields
13-week Treasury bill			0.0800%			0.070%			14.29%			700.00%
5-year Treasury note			0.726%			0.670%			8.20%			-12.53%
10-year Treasury note			1.651%			1.556%			4.43%			-11.76%
30-year Treasury bond			2.720%			2.619%			1.80%			-5.85%
Currencies
U.S. Dollar Index			82.379			82.913			-0.90%			2.31%
British pound			1.5499			1.5382			0.56%			-0.25%
(in U.S. $)
U.S. $ in pounds			£0.645			£0.650			-0.55%			0.25%
Euro in dollars			$1.26			$1.25			1.75%			-2.93%
(in U.S. $)
U.S. $ in euros			€ 0.795			€ 0.803			-1.72%			3.02%
U.S. $ in yen			79.43			78.76			1.11%			3.02%
U.S. $ in Chinese			6.39			6.36			0.07%			0.95%
yuan
Canada dollar			$0.973			$0.964			0.51%			-0.78%
(in U.S. $)
U.S. dollar			$1.028			$1.038			-0.51%			0.78%
(in Canadian $)
Commodities
Gold (-GC)			$1,634.20			$1,616.90			4.48%			4.30%
(per troy ounce)
Copper (-HG)			$3.379			$3.289			0.40%			-1.66%
(per pound)
Silver (-SI)			$29.4880			$28.4050			6.24%			5.63%
(per troy ounce)
Wheat (-ZW)			$6.2425			$6.1325			-3.03%			-4.37%
(per bushel)
Corn (-ZC)			$5.8625			$5.675			5.58%			-9.32%
(per bushel)
Cotton			$0.6745			0.6536			-6.12%			-26.43%
(per pound)
Coffee			$1.5800			1.5845			-3.04%			-31.20%
(per pound)
Crude oil (-CL)			$85.02			$84.29			-1.75%			-13.97%
(per barrel)