Consumer stocks lead Wall St gains

Shares in PNC Financial Services lost ground on news that it was buying Royal Bank of Canada’s US retail banking operations for $3.45bn, while the wider markets edged higher as losses in the financial sector were balanced by gains in consumer stocks.

The deal, which involves nearly 420 RBC branches in the US, left shares in PNC Financial down 2 per cent to $56.66 while Royal Bank of Canada added just 0.1 per cent to $56.61.

The move follows Capital One’s $9bn purchase of ING Direct USA, the US online banking business of the Dutch financial services group, last week.

But the deal did little to improve sentiment in the financial sector, which saw the sharpest losses in the session due to worries over the continuing turmoil in Europe.

The S&P regional banking index was down 0.8 per cent helped by First Horizon, which fell 1.4 per cent to $10.08.

But the S&P 500 was up 0.5 per cent to 1,278.36, buoyed by consumer staple and discretionary stocks as the sectors rebounded from the sharp losses seen in the previous week. Whole Foods Market led the gains in consumer staples, adding 2.2 per cent to $56.90, helped by an analyst upgrade.

The S&P consumer staples index put on 0.7 per cent, also helped by Costco, up 2 per cent to $81.25.

In the consumer discretionary sector, JC Penney saw some of the strongest gains, adding 2.6 per cent to $35.19. This was a continuation of the 11.1 per cent gains last week after the company announced that Ron Johnson, senior vice-president of retail at Apple, would take over as chief executive in November.

The consumer discretionary sector was up 0.9 per cent, the best performing sector on Wall Street, paring some of the 6 per cent losses seen since the start of the month. These gains helped the Dow Jones Industrial Average up 0.6 per cent to 12,080.76, while the Nasdaq Composite rose 0.5 per cent at 2,629.66.

In the previous session, the markets narrowly avoided falling into negative territory for the seventh consecutive week. The S&P 500 was 0.04 per cent higher over the five days, a fraction away from the longest weekly run of losses on the index in a decade.

The Dow narrowly avoided its seventh consecutive week of losses as well on Friday, while the Nasdaq was not so fortunate and ran into its fifth straight week of declines.

The S&P is down 6.3 per cent from the start of May when the latest downturn began.

“In a month light on corporate news, the ‘worry season’ has been dominated by news from Greece, the US debt ceiling, US recession fears and slowing China growth,” said Bank of America Merrill Lynch analysts, explaining the recent month and a half of losses.

Many analysts have begun to argue that the latest losses have opened up some buying opportunities on Wall Street.

“We believe the risk of missing the [buying opportunity in the] summer dip is greater than risk of further significant downside,” continued analysts at Bank of America.

In corporate news, shares in Harbin Electric soared 59.2 per cent to $12.82 after it agreed to sell itself to companies owned by Tianfu Yang, the chairman and chief executive, in a deal that values the Chinese electric motor manufacturer at $744m. The stock has been on a rollercoaster ride in the past week, plunging 51.2 per cent on Thursday after Citron Research raised doubts about the proposed management-led buy-out.

It then jumped 20.1 per cent on Friday as these concerns appeared to subside. But the stock is still 19 per cent below where it was at the start of the month.

Harbin Electric is not the only US-listed Chinese company that has seen volatile trading in recent weeks. Sino-Forest is down 86.1 per cent since the start of the month.

Elsewhere, Research in Motion continued to lose ground after its disappointing earnings last week, not helped by a ratings downgrade from Bernstein. The stock was down 6.7 per cent to $25.89, adding to losses of 24.1 per cent last week.

Dine Equity rose 0.5 per cent to $49.05 after reaching a deal with M.H. Alshaya, an international franchise operator, to develop 40 IHOP restaurants in the Middle East over the next five years. The move will be the restaurant chain’s first major expansion outside North America.

Carpenter Technology added 8.4 per cent to $51.92 after agreeing to acquire Latrobe Specialty Metals.

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