Stocks see strong October gains trimmed

Allan Roth reports that October was the best month for US stocks in 24 years.

In spite of a down day, US stocks gained 11.5 percent in October, making it the seventh best month for the US stock market since data was tracked on the Wilshire 5000, the broadest measure of the U.S. stock market. October 2011 was the best month for stocks since January 1987 when stocks earned 12.8 percent

The strong performance came despite a sharp fall on the last day of the month. From Bloomberg:

Stocks retreated from an almost three-month high as Italian and Spanish bonds fell amid concern European leaders will struggle to raise funds to contain the region’s debt crisis. The yen sank from a post-World War II record against the dollar after Japan intervened in the market.

The MSCI All-Country World Index lost 3 percent at 4:24 p.m. New York time, trimming its monthly rally to 10 percent, still the most since April 2009. Deutsche Bank AG (DBK), BNP Paribas SA and Morgan Stanley (MS) dropped at least 8.6 percent. The Standard & Poor’s 500 Index slipped 2.5 percent, the most since Oct. 3. Italian five-year yields rose 13 basis points to 5.88 percent. German bunds and U.S. Treasuries advanced. The yen tumbled as much as 4.6 percent against the dollar, the most since 2008. Copper futures fell 2 percent.

Concerns over the European debt situation were revived after Greek prime minister George Papandreou announced a referendum on the financing plan put up by European leaders last week. This raised the possibility that voters could reject the plan, putting the bailout in jeopardy.

The fall in the yen followed another intervention by the Japanese government in the foreign exchange market.

Meanwhile, economic data on Monday highlight the dilemma continuing to face the European Central Bank's monetary policy. The inflation rate in the euro area held at 3 percent in October, the same as in the previous month. This came even as unemployment in the region rose to 10.2 percent in September from 10.1 percent in August.

Data from the UK on Monday also indicate a weak economy. Mortgage approvals fell to 50,967 in September from 52,347 in August, net mortgage lending rose by 0.3 billion pounds in September compared to 0.5 billion in August and Hometrack reported that house prices fell at the fastest monthly pace in eight months in October.

The US economy, though, appears to be holding up reasonably well. The Institute for Supply Management-Chicago's business barometer fell to 58.4 in October from 60.4 in September, indicating slower but continued growth in activity. The Dallas Federal Reserve Bank's general business activity index jumped to 2.3 in October from minus 14.4 in September.