Retail, auto sales lift Wall St mood

Wall Street advanced after another drop in the number of Americans applying for unemployment benefits and better-than-expected sales for US retailers including GAP. Even so, disappointing manufacturing data kept a lid on gains.

In early afternoon trading in New York, the Dow Jones Industrial Average rose 0.37 per cent, the Standard & Poor's 500 Index gained 0.59 per cent and the Nasdaq Composite Index climbed 0.73 per cent.

US jobless claims dropped by 2,000 to 351,000 in the latest week, holding at the lowest level in four years and bolstering optimism the labour market is finally starting to improve and helping consumers feel more comfortable about spending.

Some of that confidence was clearly reflected in strong sales numbers for retailers, propelling shares of Gap and Buckle up more than 6 per cent. Overall, same-store sales rose 6.4 per cent at the 18 chains that reported the February figures this week, surpassing analysts' estimates of a 4.8 per cent gain and a year-earlier increase of 4.7 per cent, according to Reuters.

Also benefitting from improved consumer sentiment were car makers including General Motors, which posted an unexpected increase in US sales last month, and Ford Motor, which enjoyed a 14 per cent jump.

Even so, the pace of growth in American manufacturing unexpectedly eased. The Institute for Supply Management said its index of national factory activity dropped to 52.4 last month from 54.1 the previous month. That was short of expectations for 54.5.

"The ongoing global challenges are part of what we're seeing in the number today," Christopher Low, an economist at FTN Financial in New York, told Reuters.

While aware of the potential headwinds, optimism prevails.

UBS raised its forecasts for the S&P 500 and its companies' earnings amid a "dramatic" improvement in the economy, according to Bloomberg News. Jonathan Golub's year-end forecast for the benchmark gauge rose to 1,475 from 1,325 and he estimates earnings-per-share of US$103 this year and US$112 in 2013, compared with previous forecasts for US$99 and US$111, respectively.

In Europe, the Stoxx 600 Index ended the day with a 1 per cent gain.

Spain and France sold 12.5 billion euros of bonds in successful auctions a day after the European Central Bank supplied 529.5 billion euros in three-year loans to 800 European banks.

Spain's two-year yield dropped 13 basis points to 2.19 per cent at 5pm London time after earlier dropping to 2.15 per cent, the lowest since November 2010, according to Bloomberg, while Italy's two-year yield sank 38 basis points to 1.76 per cent after earlier falling as low as 1.68 per cent, the least since October 2010.

"We suspect that a lot of Italian and Spanish banks are channeling a lot of that money into the sovereign debt," Piet Lammens, head of research at KBC Bank in Brussels, told Bloomberg, referring to the ECB's operation. "We know that with the money the Italian banks got at the end of December they upped their portfolio of bonds and we think they will continue to do this."