Stocks rallied at the opening bell Monday after another round of corporate acquisitions and a better-than-expected economic report from Japan.
Google said it will buy wireless phone maker Motorola Mobility for $12.5 billion, the biggest of three deals announced Monday that each topped $1 billion.
Earlier, world markets rose after Japan said its economy shrank last quarter by less than half of what economists expected following its March earthquake.
That helped overshadow worries about the weak economy.
Though concerns remain over the state of the global economy and Europe’s debt crisis, many investors think the recent sell-off has been overdone and are snapping up potential bargains.
“Some stability appears to be returning to markets …. but businesses remain wary that the U.S. government isn’t doing enough to arrest its massive budget deficit and that European governments aren’t doing enough to avert financial contagion from infecting the banking system,” said Sal Guatieri, an analyst at BMO Capital Markets.
Dow Jones industrial average, five trading days
The calmer mood has been helped by last Friday’s better than expected U.S. retail sales figures for July and news earlier that Japan contracted by an annualized rate of 1.3% in the second quarter after the devastating earthquake and tsunami. The consensus in markets was that Japan’s economy would have shrunk by at least double that rate.
Europe’s debt crisis will be in the spotlight this week, particularly on Tuesday when French leader Nicolas Sarkozy and German Chancellor Angela Merkel meet, and second-quarter eurozone growth figures are published.
“The Franco-German summit on Tuesday in Paris will be a major focus for financial markets this week, especially coming so shortly after what has been a very tumultuous week for France in financial markets,” said Jan Dubsky, euro area economist at the Royal Bank of Scotland.
Of particular interest will be what the two leaders say about the viability of a eurobond as a potential solution to Europe’s debt crisis, which has already seen three eurozone countries get bailed out. With a eurobond, the 17 countries that use the euro would jointly issue debt.
One of the reasons Europe’s debt crisis has flared again is that the markets started fretting about the state of the public finances of Italy and Spain.
That prompted the European Central Bank a week ago to start intervening directly in the markets to support their bond prices. Figures later Monday will show how much the ECB splashed out in this bond-buying program, which has worked in getting both countries’ borrowing costs down to manageable levels.
In return for directly buying Italian bonds, the ECB wanted more austerity from the government. Last week, Prime Minister Silvio Berlusconi announced —45.5 billion ($64.8 billion) in emergency austerity measures.
The improving appetite for risk, evidenced by the more benign stock market conditions, was evident in currency markets too, with the euro up 0.8 percent at $1.4385.
And notably, the Swiss franc continued to fall on speculation that the Swiss National Bank will peg the currency to the euro. Swiss officials have hinted that further action could be taken, after liquidity measures, to correct the currency’s “massive overvaluation” in recent trading. By mid afternoon, the euro was 0.7 percent higher on the day at 1.1275 francs.
Despite the speculation, BNP Paribas strategists said in a report that the Swiss franc “is susceptible to renewed strength if the markets do not receive some official signals of pending action by midweek.”
In Asia, stock markets rose Monday as data showed the economy of earthquake-battered Japan shrank less than expected.
Japan’s Nikkei 225 index closed up 1.4 percent at 9,086.41 while Hong Kong’s Hang Seng index shot up 3.3 percent to 20,260.10.
Mainland Chinese shares gained for a fifth trading day on expectations the government announce new measures to support growth. The Shanghai Composite Index added 1.3 percent to 2,626.77 and the Shenzhen Composite Index rose 1.4 percent to 1,175.41.
In the oil markets, prices recovered alongside equities. The main New York contract was up 25 cents at $85.63 a barrel.