Stocks Rise, Default Swaps, Dollar Drop Following Dubai Bailout

Dec. 14 (Bloomberg) -- Stocks rose as Abu Dhabi bailed out Dubai’s Nakheel PJSC and Exxon Mobil Corp. agreed to buy XTO Energy Inc. for $31 billion. The cost to protect U.S. corporate bonds from default fell to a 12-week low, while the dollar slipped and oil and Treasuries were little changed.

The Standard & Poor’s 500 Index climbed 0.7 percent to a 14-month high of 1,114.11 at 4 p.m. in New York. Dubai’s equity index jumped 10 percent, the most in 14 months. The dollar weakened against 15 of 16 major currencies tracked by Bloomberg including the euro, which strengthened as concern eased that Europe’s biggest banks will write down Dubai loans.

Abu Dhabi’s pledge reassured investors who had sent stock markets tumbling last month on concern defaults would slow the global economic recovery. Greek Prime Minister George Papandreou may announce measures to cut the European Union’s biggest budget deficit later today after the nation’s bonds plunged to their lowest levels in seven months last week.

Dubai’s bailout “puts to rest any lingering fears that might have existed about possible contagion,” Tim Condon, head of Asia credit research for ING Groep NV in Singapore, said in an interview. “It’s inevitable that we’re going to see a few more incidents of credit stress show up in both banks and corporates, but in terms of it becoming a macroeconomic issue I think Dubai World was as close as we were going to get.”

Default Concern

Dubai’s Nov. 25 announcement that state-owned Dubai World, the parent of Nakheel, would seek to delay debt repayments stoked concern that a default would add to the $1.7 trillion of credit losses and asset writedowns posted by global financial companies since 2007. The announcement triggered the biggest stock market slump in three months in Asia and Europe’s worst rout since April.

The S&P 500 added to gains from the end of last week spurred by data on jobless claims and retail sales that signaled the economic recovery is strengthening. XTO Energy surged 15 percent in New York following Exxon Mobil’s bid. Sun Microsystems Inc. added 11 percent as Oracle Corp. offered proposals to win European approval to buy the company.

Gains in U.S. equities were limited as Exxon Mobil, the nation’s biggest company by market value, slumped 4.3 percent. Citigroup Inc. lost 6.3 percent after striking a deal with regulators to repay $20 billion in rescue funds.

Creditworthiness

Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, declined 2.25 basis points to a mid-price of 92.5 basis points, according to Barclays Capital. A decrease in the index signals improvement in investor confidence, while an increase suggests the opposite.

Europe’s Dow Jones Stoxx 600 Index advanced 0.8 percent today as the region’s banks rallied. The measure declined last week after Fitch downgraded Greece and S&P Ratings Services cut its outlook for Spain, sparking concern there will be more debt- grade reductions. The Stoxx 600 sank 3.3 percent on Nov. 26, the first trading day after Dubai’s announcement.

HSBC Holdings Plc, which had $15.9 billion in loans and advances to customers in the United Arab Emirates at the end of June, climbed 2.4 percent in London. Standard Chartered Plc, the U.K. bank that gets most of its profit in emerging markets, rose 4.3 percent. National Bank of Greece SA, the nation’s biggest lender, added 5.7 percent in Athens.

The MSCI Asia Pacific Index added 0.6 percent. Samsung C&T Corp., builder of the world’s tallest tower in Dubai, climbed 3.3 percent.

Dubai, Abu Dhabi Surge

The Dubai Financial Market General Index climbed to the highest level this month. Abu Dhabi’s ADX General Index advanced 7.9 percent. Nakheel’s $750 million of Islamic bonds due 2011 surged to 67.5 cents on the dollar from 36 on Dec. 11, according to Citigroup prices.

Dubai’s pledge to adopt global standards on transparency and creditor protection is a “giant step in the right direction” and the worst of the emirate’s debt crisis is over, investor Mark Mobius said.

“They said that going forward they wanted to become more transparent and keep people fully informed,” Mobius, who oversees more than $30 billion as chairman of Templeton Asset Management Ltd., said in a phone interview from Riyadh today. “That is a very giant step in the right direction. By making that statement, Dubai will be able to have a foremost position here in the Middle East.”

Seven-Week High

The MSCI Emerging Markets Index of developing-nation shares climbed for a third day, rising 0.7 percent. Brazil’s Bovespa Index added 0.1 percent and Turkey’s ISE National 100 Index rose to the highest level in seven weeks after Credit Suisse Group AG upgraded the country’s banks to “overweight.”

The extra yield investors demand to own emerging-market bonds over U.S. Treasuries fell eight basis points to 2.94 percentage points, the lowest level in two months, according to JPMorgan Chase & Co.

The euro rose 0.2 percent versus the dollar. The yen advanced against 12 of the 16 most-traded currencies after Japan’s Tankan report, adding 0.5 percent compared with the dollar. The index of manufacturer sentiment climbed 9 points to minus 24 in December, the Bank of Japan said, beating the minus 27 forecast in a Bloomberg News survey of 19 economists. It was still the smallest increase since Japan’s recession ended in the second quarter.

Budget Deficit

Greek bonds fell for the seventh time in eight days, with the yield on the two-year note climbing 16 basis points to 3.11 percent, on concern the government will struggle to pay its debt. Papandreou may announce measures to cut the budget deficit in a speech in Athens, the prime minister’s press office said yesterday. Greece had its debt downgraded last week by Fitch Ratings.

Copper futures rose 0.6 percent to $3.152 a pound in New York. Lead, nickel and tin advanced in London.

Gold futures for February delivery rose as high as $1,128.90 an ounce in New York, rebounding from the biggest weekly loss since February, as the dollar’s drop boosted demand for the precious metal as an alternative asset. The U.S. Dollar Index, a measure of the greenback’s value against six major currencies, fell 0.3 percent.

Hog futures rose as an extended rally in wholesale-pork prices signaled increased demand for the meat. Hog futures for February settlement rose 0.7 percent to 65.875 cents a pound in Chicago. The most-active contract has climbed 16 percent since the end of October as retailers stocked up on pork before year- end holidays and on speculation that the slumping dollar has boosted exports.