The S&P 500 advanced 0.7 percent, to 1162.27, after retreating 1.6 percent earlier. The Dow increased 68.99 points, or 0.6 percent, to 11,061.12.
“The fact that the Chinese are coming in is comforting,” said Quincy Krosby, a market strategist for Newark-based Prudential Financial, which oversees $883 billion. “The question will be: Is this enough for the depths of the endemic problems facing the European Union? Until we see an easing in credit markets, it’s going to be difficult to take advantage of good valuations.”
Stocks rebounded as the Financial Times said Italian officials are trying to persuade China to buy its bonds, without identifying its sources. An Italian government official, speaking on the condition of anonymity, told Bloomberg News that Italian officials have held talks with Chinese counterparts about potential investments in the euro zone’s third-largest economy.
The purchase of Italian bonds by China was not the focus of the talks, which took place in the past few weeks, the official said on the condition of anonymity. A spokesman for Italian Finance Minister Giulio Tremonti declined to comment.
“If China is willing to invest in Italy, maybe that’s the solution,” said Mark Bronzo of Security Global Investors in Irvington, N.Y. “It introduces a new source of capital that people weren’t considering outside Europe. Maybe the other countries are going to be able to find capital on their own. That’s what we need to see to shore up these countries.”
Between April 29 and Aug. 8, the S&P 500 fell 18 percent on concern about Europe’s debt crisis and an economic slowdown. It closed as low as 1119.46 on Aug. 8, within 29 points of a bear market, or a 20 percent drop.
Stocks fell earlier Monday amid concern that Greece is moving closer to a debt default. Moody’s Investors Service may cut the ratings of BNP Paribas, Societe Generale and Credit Agricole this week because of their Greek holdings, two people with knowledge of the matter said.
The Morgan Stanley Cyclical Index of companies most tied to economic growth lost 0.4 percent, paring a decline of as much as 2.8 percent. 3M, the maker of Post-it Notes, gained 2.1 percent, to $78.22. Sears Holdings added 1.3 percent, to $54.24.
NetLogic soared 51 percent, to $48.12. Shareholders will get $50 a share, which is 57 percent more than Santa Clara, Calif.-based NetLogic’s closing price on Sept. 9.
Pacific Investment Management’s Neel Kashkari said investors should buy equities because valuations, income growth and dividends show that the asset class is attractive.
The S&P 500’s price-earnings ratio sank to a 28-month low of 12.2 last month, and then recovered to 12.5, according to data compiled by Bloomberg. The inverse of that multiple, known as the earnings yield, shows income represents 8 percent of the measure’s price, or 6.1 percentage points more than the rate on 10-year Treasurys. That’s the biggest gap since 2009, when the level was the highest in Bloomberg data going back to 1962. The dividend payout is exceeding bonds for the second period since the 1950s.
“Equities offer returns in three different ways: Multiples can expand, earnings can grow, and through dividends,” Kashkari, the head of global equities at Pimco, said in an interview on Bloomberg Television’s “InBusiness” with Margaret Brennan. “On all three factors, equities look very attractive.”
— Bloomberg News
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