Stocks jump on housing data, stimulus hopes

By Andrea Tse

Stocks rose Tuesday amid signs of a stabilizing housing market and hopes for more stimulus from the Federal Reserve.

The Dow Jones Industrial Average ($INDU) was up by 123 points at 12,865. The S&P 500 ($INX) was up by 14 points at 1,359. The Nasdaq Composite ($COMPX) was up by 35 points to 2,930.

The U.S. Commerce Department on Tuesday reported that housing starts fell 4.8% to a seasonally adjusted annual rate of 708,000 in May, from an upwardly revised April estimate of 744,000. The 744,000 figure was the best data on this indicator dating back to 2007. Economists surveyed by Thomson Reuters had expected a 720,000 annual pace for May.

Building permits rose 7.9% to a seasonally adjusted annual rate of 780,000 from an upwardly revised 723,000. Economists had projected an annual rate of 728,000 for May.

"Overall, a mixed read from the housing sector but one that is consistent with further stability in the single-family market," said Ian Lyngen, a strategist at CRT.

"Our long-held view, initiated last October, is that the Fed will launch QE3 by early fall," said Michael Hanson, a senior U.S. economist at Bank of America. "That remains our view today. We also now think that the Fed will not start hiking interest rates until mid-2015 at the earliest."

"We see roughly a 1-in-3 chance of a significant policy easing at the June FOMC meeting," Hanson said. He thinks the Fed statement on Wednesday after its meeting will be "quite dovish" and would not be surprised to see stronger language around policy, "perhaps replacing 'stands ready' to adjust its balance sheet for the 'is prepared' that it has used since June 2011."

When the updated projections are released, Hanson expects downward revisions to the Fed's above-consensus gross domestic product growth forecasts and a wider range of views as the doves raise their unemployment rate projections and lower their inflation expectations.

Stocks closed mixed Monday as the pro-bailout party's victory in Greece over the weekend provided only a fleeting dose of relief to the eurozone debt crisis. The election results quelled immediate concerns about Greece's being on a path to leave the single-currency bloc, but news of rising borrowing costs for Spain kept a lid on investor enthusiasm over the outcome.

In Greece, leaders raced to build a coalition government to renegotiate the terms of the nation's 130 billion-euro bailout deal with the European Union and International Monetary Fund. 

In Spain, the eurozone's fourth-largest economy, the yield on 12-month Treasury bills rose to 5.07% and on 18-month bills to 5.11%, Reuters reported. While yields on 10-year bonds eased slightly to around 7%, the debt auction underscored the government's increasingly shrill pleas for help from the European Central Bank, Reuters said.

Eurozone members of the Group of 20 major economies are expected to declare their commitment to "take all necessary policy measures" to ensure that the euro stays intact and to bolster confidence, according to reports of a draft communiqué from the G-20 summit in Mexico.

The FTSE in London was up 1.23%, and the DAX in Germany was up 0.93%. Hong Kong's Hang Seng finished flat, and Japan's Nikkei Average fell 0.75%.

In corporate news, Microsoft (MSFT) on Monday unveiled a tablet line called Surface, which the software giant said are "PCs built to be the ultimate stage for Windows." Microsoft executives, at an event in Los Angeles, showed off "two Windows tablets and accessories that feature significant advances in industrial design and attention to detail." The product announcement puts Microsoft back into competition with Apple (AAPL) and the iPad.

Oracle (ORCL) released its fourth-quarter report early and soared past estimates as new software licenses surged 7% to $4 billion. The software company also added a hefty $10 billion to its existing buyback program.

Walgreen (WAG) said Tuesday it is buying a 45% stake in Alliance Boots for $6.7 billion. Walgreen also has the option to buy the remainder of Alliance Boots, the European health and beauty retailer.

J.C. Penney (JCP) on Monday announced the abrupt departure of Michael Francis as its president after just eight months with the retailer. A reason for Francis' resignation from J.C. Penney, which is undergoing a revamp that hasn't gone well, wasn't disclosed. A press release said CEO Ron Johnson will assume "direct responsibility and oversight of the company's marketing and merchandising functions."

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