World Crisis Online

By Inyoung Hwang and Rita Nazareth

March 3 (Bloomberg) — Stocks rallied, sending benchmark U.S. indexes to their biggest gains of the year, as oil slipped and reports signaled the global economy is strengthening. The euro climbed to a four-month high as the European Central Bank said an interest-rate increase may be needed to fight inflation.

The Standard & Poor’s 500 Index jumped 1.7 percent to 1,330.97 at 4 p.m. in New York, its biggest gain since Dec. 1, and the MSCI Emerging Markets Index increased for a fifth day in its longest rally in two months. The Stoxx Europe 600 Index pared gains amid concern borrowing costs will rise. The euro appreciated 0.7 percent to $1.3961 and German two-year note yields jumped 23 basis points. Oil fell from its highest price in more than two years. Treasuries sank.

U.S. equities advanced for the fourth time in five days after jobless claims unexpectedly fell, underscoring the Federal Reserve’s assessment that the labor market is improving. Other reports showed American service industries expanded at the fastest pace in five years, retail sales topped estimates and South Korean industrial output grew. ECB President Jean-Claude Trichet said policy makers must exercise “strong vigilance” as inflation risks increase.

“The stock market has the best of all worlds,” said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees more than $85 billion. “The numbers we’ve seen — employment, ISM, retail sales — argue that concern about a slowdown due to rising energy costs may be overstated.”

Jobless Claims

Industrial and financial companies led gains in all 10 industry groups in the S&P 500. JPMorgan Chase & Co., General Electric Co. and Apple Inc. rallied more than 1.9 percent. The Dow Jones Transportation Average, a gauge of 20 shipping, trucking, airline and railroad stocks, climbed 2.5 percent for its biggest advance since November.

Applications for unemployment benefits fell by 20,000 to 368,000 last week, the Labor Department said. Economists forecast claims would climb to 395,000, according to the median estimate in a Bloomberg News survey. The data comes before tomorrow’s monthly jobs report, which is forecast to indicate payrolls rose by 195,000 workers in February after a 36,000 gain the previous month.

“The U.S. jobs data supports an improving economy,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania. “There’s also some sort of relief about oil prices being down. Still, how much of an impact the recent spike in crude will have remains to be seen.”

Improving Data

The Institute for Supply Management’s index of non- manufacturing businesses increased to 59.7 from 59.4 in January. The median forecast of economists projected the index would fall to 59.3. Same-store sales rose 4.3 percent last month, beating an overall compilation of analysts’ estimates for a gain of 3.8 percent at the 27 chains tracked by Retail Metrics. Separate government data showed productivity climbed more than estimated and labor costs dropped more than forecast.

South Korea’s Kospi Index jumped 2.2 percent, the biggest rally in almost six months, and the won strengthened 0.6 percent versus the dollar. Industrial production rose 13.7 percent in January from a year earlier, Statistics Korea said today, topping the 12.4 percent median estimate in a Bloomberg survey.

Turkey’s ISE National 100 Index rallied 2.9 percent after Credit Suisse Group AG raised its recommendation on the equity market to “overweight” and a report showed the inflation rate fell to the lowest in four decades.

European Markets

More than two stocks advanced for every one that fell in Europe’s Stoxx 600. Anheuser-Busch InBev NV, the world’s largest brewer, surged 2.3 percent and Adecco SA, the biggest supplier of temporary workers, rallied 5.4 percent. British Sky Broadcasting Group Plc gained 3 percent to the highest price since 2002 after Rupert Murdoch’s News Corp. won U.K. government approval for its 7.8 billion-pound ($12.7 billion) bid to take full control of the company.

Oil lost 0.3 percent to $101.91 a barrel after reports that Venezuela offered to mediate a resolution to the crisis in Libya, which has cut crude supplies from Africa’s third-biggest producer. Cotton futures rose 2.5 percent to $2.057 a pound for a fifth straight gain after exports jumped in the U.S., the world’s largest shipper.

Gasoline for April delivery dropped 0.33 cent to settle at $3.0262 a gallon on the New York Mercantile Exchange, after settling yesterday at the highest level for the contract closest to expiration since Aug. 27, 2008.

Wheat futures rose for the fourth time in five sessions, climbing 1.5 percent to $8.235 a bushel in Chicago, on speculation that dry weather in the southern U.S. Great Plains may hurt winter crops, while wet conditions in northern areas threaten to delay spring planting. Food prices rose to a record in February, the United Nations said today

Default Swaps Drop

The cost of protecting U.S. corporate debt from default followed the price of crude higher. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 2.6 basis points to a mid-price of 82.43 basis points, according to index administrator Markit Group Ltd.

Ten-year Treasury yields climbed 10 basis points to 3.57 percent. The difference in yield between 10-year Treasury notes and Treasury Inflation Protected Securities, a gauge of expectation for inflation, rose to the highest level since July 2008. The so-called breakeven rate rose to just below 2.50 percentage points.

The Dollar Index, a gauge of the U.S. currency against six major peers, lost 0.2 percent to the lowest level since November.

The euro gained against all but three of its 16 major peers, advancing 1.5 percent against the Swiss franc and 1.3 percent versus the yen. The Swiss National Bank reported a 2010 loss of 19.2 billion francs ($21 billion) as the euro’s depreciation eroded the value of its reserves.

The pound declined 0.3 percent against the dollar and depreciated versus 13 of 16 major peers after a report from Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply showed an index of service industries fell more than economists expected last month.

–With assistance from Dave Liedtka and Mary Childs in New York, Whitney McFerron in Chicago, Stephen Kirkland, Claudia Carpenter, Adam Haigh, Michael Patterson, Andrew Rummer and Daniel Tilles in London. Editor: Michael Regan, Nick Baker