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Last updated: January 12, 2011 9:52 pm
US equities climbed to fresh two-year highs led by ITT after the manufacturing company announced plans to split into three publicly traded companies.
ITT, which makes water pumps and night vision goggles, rose 16.5 per cent to $61.50 on news it was spinning off its water and defence businesses.
The streamlined ITT will have sales of $2.1bn in 2011, while the defence company will have sales of $5.8bn and the water technology business may generate $3.6bn, the company said in a statement.
The news lifted related industrial stocks, with Tyco International up 1.5 per cent to $43.85. The S&P Industrials index was up 0.9 per cent to $308.52.
But the best performing stocks were in the financial sector, which helped lift the S&P 500 to two and a half year highs, rising 0.9 per cent to 1,285.96. The Dow Jones Industrial Average rose 0.7 to 11,755.44, while the Nasdaq Composite gained 0.6 per cent to 2,737.33, a three-year high.
JPMorgan Chase saw one of the strongest gains in the financial sector after Jamie Dimon, chief executive, said he wanted to boost the company’s dividend in the second quarter of 2011.
Mr Dimon said a dividend rise could come after the Federal Reserve’s “stress tests” on major US banks to ensure they have sufficient capital reserves.
“We will be adequately capitalised even in a stressed situation, so when they finish these tests we’re hopeful we’ll be allowed to go back to paying normal dividends,” he said.
JPMorgan rose 2.5 per cent to $44.71, one of the biggest gainers on the BKX bank index, although these gains were pared somewhat by news that Goldman Sachs had downgraded the stock to “neutral” from “overweight”. Elsewhere in the financial sector, the Bank of New York Mellon was up 2.4 per cent to $31.44 while Morgan Stanley rose 2.1 per cent to $28.56.
Financials were also lifted by news that Portugal had successfully issued debt in a bond auction. This success limited the short-term pressure on Portugal to accept a bail-out, which could have severe consequences for the European banking sector and therefore by extension US financial stocks. But some commentators warned a bail-out was still a risk.
Financial stocks were still the best performing on Wall Street, however. The S&P Financials index closed up 1.7 per cent to 222.49, also helped by a ratings upgrade of the US banking sector by Wells Fargo, which moved the sector to “overweight” from “market weight”.
Analysts at Wells Fargo said that dividend payout ratios in the US banking sector “should double” in 2011 from 14 per cent to between 25 and 30 per cent.
Oil and gas stocks continued to rise in the session after the price of oil neared $100 a barrel due to supply disruptions in the North Sea and Alaska, as well as more general optimism on the global economic recovery in 2011.
The S&P Oil and Gas index was up 2 per cent to 582.49, led by Schlumberger, the world’s largest oil services group, which gained 2.7 per cent to $84.45.
The index has now risen 54.8 per cent since the start of September when oil prices began to rise steeply.
Chevron , the second-biggest oil company in the US, was up 0.7 per cent to $92.45 after it said its fourth-quarter earnings were expected to be higher than in the previous quarter, largely due to higher oil prices.
St Jude Medical , the medical device maker, rose 1.9 per cent to $41.73 after the company said it expected its fourth-quarter earnings figures to be at the top end of its previous estimates of between 72-74 cents a share.
LeapFrog Enterprises , the educational toy maker, fell 22.3 per cent to $4.22 after warning its current-year earnings results would fall short of expectations. Bill Chiasson, chief executive, said in spite of a “solid start to the holiday season”, consumer “demand softened late in the quarter relative to our expectations”.
AK Steel was the biggest loser on the S&P, falling 2.4 per cent to $15.23 after UBS downgraded the stock to “sell” from “neutral”.
Campbell Soup , the world’s largest soup maker, rose 1 per cent to $34.92 after announcing a joint venture with Swire Pacific, the Hong Kong conglomerate, in order to develop the company’s soups in China. Campbell Soup will own a 60 percent stake in Campbell Swire, which will begin operating this year.
In base metals Cliffs Natural Resources rose 4.1 per cent to $88.43 after agreeing to acquire Consolidated Thompson Iron Mines of Canada in a friendly all-cash C$4.9bn deal.
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