By Anora Mahmudova and Barbara Kollmeyer, MarketWatch China's
central bank cuts interest rates
NEW YORK (MarketWatch)--U.S. stocks pared most of their early
morning gains on Friday as the rally triggered by a fresh dose of
liquidity from China's central bank and dovish comments from
European Central Bank President Mario Draghi faded by
afternoon.
The key indexes could still score another record close at these
levels and look set to book weekly gains.
The S&P 500 (SPX) and the Dow Jones Industrial Average (DJI)
were trading higher, but well off session highs. The Nasdaq
Composite (RIXF) was nearly flat.
J.J. Kinahan, chief derivatives strategist at TD Ameritrade,
said that the realization that today's news from China and Europe
was not all that good may be behind the fading of the rally.
"While in the short term, cutting rates and buying bonds by
central banks is good for equities, the underlying reasons are not
positive -- those actions are a response to a slowing and weak
demand. Their economies are in trouble," said Kinahan.
"Also, the S&P 500 hit a resistance level at 2,071 and it's
not surprising to retrench a few times," he added.
China's central bank cut its one-year loan rate by 0.4
percentage points and its one-year deposit rate by 0.25 percentage
points while saying it would allow more flexible deposit rates.
The ECB said it began buying asset-backed securities Friday,
expanding its quantitative easing regimen.
Before that, Draghi said the ECB will do what it "must to raise
inflation and inflation expectations as fast as possible," at a
banking conference in Frankfurt. The comments were taken as a sign
the ECB will step-up asset buying.
The ABS purchases represent the second leg of the ECB's quest to
catalyze growth by expanding its balance sheet. In September, the
central bank began buying covered corporate bonds, which are
guaranteed against a company's assets.
Correction off the table for now: After China's move, the
majority of the world's big central banks now have loose policies,
while there's growing consensus that the Fed and the Bank of
England will hold off near-term tightening, said Benjamin Yip,
senior analyst in London for Amplify Trading.
"In light of this, stocks have been bid for the majority of the
morning session and apart from some de-risking of portfolios and
balance sheets ahead of the weekend, we cannot see any reason for a
major correction," Yip said in a note.
On Thursday, the S&P 500 (SPX) logged its 44th record close
this year after a marginal 0.2% gain to 2,052.75. The Dow
industrials (DJI) logged a 27th record close. Trading volumes were
thin, something Goldman Sachs said investors should get used to in
the coming year. See also: Crash-caller Schiff says Fed will cause
the next one
Stocks to watch: Sports retailer Hibbett Sports Inc.(HIBB)
jumped after lifting its outlook.
Gap Inc.(GPS) slid after results late Thursday missed Wall
Street forecasts and the retailer delivered a disappointing
full-year outlook.
Splunk Inc.(SPLK) surged after results topped analysts
forecasts.
GameStop Corp.(GME) fell after a set of weak results and outlook
late Thursday.
(Read more about today's daily movers in our regular Movers
& Shakers column
http://www.marketwatch.com/story/foot-locker-ann-gamestop-marvell-in-focus-2014-11-21.).
Europe rallies, euro hit: Europe got a big lift from Draghi's
comments and China, with the Stoxx 600 index up 2.1%, while the
euro (EURUSD) slid against the dollar. The yen(USDJPY) rose against
the dollar to around Yen117.80 after Japan Finance Minister Taro
Aso said the yen had declined "too fast" in the past weeks. The
Nikkei 225 snapped a four-day losing streak, rising along with the
yen.
Among other assets, gold (GCZ4) and oil prices (CLF5) were also
higher.
Victor Reklaitis contributed to this article.
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