U.S. Stocks Rise As China Cuts Rates To Bolster Growth

Stocks pared their rally as Federal Reserve Chairman Ben S. Bernanke said the central bank will assess the economy before deciding if more stimulus is needed. Caterpillar Inc. (CAT) and United Technologies Corp. added at least 1.4 percent to pace gains in industrial shares. The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. rose 0.9 percent. Best Buy Co. fell 4.6 percent as Chairman Richard Schulze resigned from the board and will explore options for his stake.

The Standard & Poor’s 500 Index increased 0.4 percent to 1,320.77 at 12:05 p.m. New York time, paring a gain of 1.1 percent. The Dow Jones Industrial Average advanced 78.03 points, or 0.6 percent, to 12,492.82. Trading in S&P 500 companies was up 10 percent from the 30-day average at this time of day.

“Sometimes investors look for their Christmas gifts in June,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “China’s action helps to calm some of the investors’ fears. Yet Bernanke is throwing some cold water on expectations for QE3. Maybe the Fed will deliver that ahead of December, but I think we’d need to see a lot more deterioration in the economy before that happens.”

Equities rallied as China’s move fanned optimism about global policy action. Stocks pared gains as Bernanke said that further rounds of stimulus could boost the economy, yet may have “diminishing returns.” He said the economy is at risk from Europe’s crisis and the prospect of fiscal tightening.

Four Days

The S&P 500 gained for a fourth day after yesterday erasing the loss driven by a disappointing jobs report on June 1. Earlier this week, the index traded at 12.9 times reported earnings, according to data compiled by Bloomberg. That was the cheapest valuation in six months, the data showed. Concern about Europe’s debt crisis and a global slowdown took the S&P 500down as much as 9.9 percent from this year’s peak.

“The risk-off trade had been pretty severe,” said Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas. His firm manages $851 billion. “The market has moved into what we consider to be very inexpensive ranges. On top of that, there’s a perception that if growth decelerates, if markets become stressed, that global policy makers stand ready with additional measures.”

A five-month low reached last week by the S&P 500 produced a pattern similar to one at last year’s low, indicating equities may be poised to rebound.

Relative Strength

While the benchmark measure sank June 1 to the lowest level since January, its 14-day relative strength index, which measures the degree to which gains and losses outpace each other, reached 28.5, staying above a low of 23.2 reached on May 18, according to data compiled by Bloomberg. Last year, the S&P 500 dipped on Oct. 3 to a level not seen since September 2010, with the RSI holding above its August low. The index then surged by 29 percent over the next six months.

“This divergence highlights that sellers are losing momentum and control,” Joshua Dollinger, chief quantitative and technical strategist at BTIG LLC in New York, wrote in an e- mail. The “signals certainly make a compelling case to be long” over the next six weeks, he said.

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