* Oil prices climb, energy stocks follow
* RIM, Nike shares sharply lower, KB Homes jumps
* Dow up 1.8 pct, S&P up 2 pct, Nasdaq up 2.6 pct
By Chuck Mikolajczak
NEW YORK, June 29 U.S. stocks surged on Friday
as investors cheered an agreement by European leaders to
stabilize the region's banks, a pact that helped remove some of
the uncertainty that has been plaguing markets.
The broad rally put the S&P 500 on track for its best day in
about three weeks and helped the benchmark index trim its
quarterly loss to less than 4 percent.
The decline would mark the first down quarter for the
benchmark index in the last three after inconclusive Greek
elections and concerns about the solvency of Spanish banks
roiled financial markets around the world.
Crucially, euro-zone leaders agreed that countries would be
able to recapitalize banks directly without increasing a
country's budget deficit.
Such a move serves to end the cycle markets fell into when
policymakers bailed out Spanish banks to the tune of $125
billion, but ended up further extending the indebtedness of the
Spanish state and shunting existing bondholders down the food
"The key is in separating the banking system from the
sovereign system and they had to have seen that," said Paul
Mendelsohn, chief investment strategist at Windham Financial
Services in Charlotte, Vermont.
"The answer was obvious and (German Chancellor Angela)
Merkel made a lot of noise before the meeting and I guess she
saw the handwriting on the wall."
Policymakers also agreed to discuss a proposal for a
pan-bloc banking union and said they wouldn't force countries
that comply with EU budget rules to adopt extra austerity
measures or economic reforms.
In addition to the boost the EU agreement gave to the Wall
Street rally, investors cited end-of-quarter portfolio
adjustments, including reallocation to bonds from stocks after
bonds outperformed stocks by a wide margin this month.
Sectors that have been among the most sensitive to
developments in the euro zone led gains. U.S. bank stocks were
among the market leaders as the KBW bank index jumped 2.1
percent. Shares of Bank of America Corp rose 3.6 percent
to $8.02. The PHLX Europe sector index climbed 3.8
The Dow Jones industrial average gained 226.14
points, or 1.79 percent, to 12,828.40. The Standard & Poor's 500
Index gained 26.63 points, or 2.00 percent, to 1,355.67.
The Nasdaq Composite Index gained 74.52 points, or 2.62
percent, to 2,924.01.
Exact details of the euro agreement remain to be worked out.
Italian and Spanish borrowing costs fell, though they
remained not far from recent highs. Market expectations for any
action during a two-day European Union summit had all but
vanished, giving markets room to bounce on good news.
Brent and U.S. crude oil prices soared on the back of the EU
agreement. Energy futures prices also got a boost from the
euro's jump of almost 2 percent against the U.S. dollar. The S&P
energy sector index added 2.3 percent.
The EU summit news overshadowed a batch of mixed U.S. data.
U.S. consumer spending stalled in May as auto purchases flagged
while consumer sentiment hit a six-month low in June in the
latest signs of trouble for the economy.
Although another report on Friday showed manufacturing
activity in the Midwest picked up this month, factories saw a
modest decline in new orders.
Attention in Europe now turns to next week's European
Central Bank meeting. The consensus is that the bank will cut
its main refinancing rate by 25 basis points to 0.75 percent and
may trim the deposit rate - the rate it pays banks for parking
money with it - by 25 basis points to 0 percent.
"You have more fireworks coming next week when the ECB meets
on the fifth because I have to believe they are going to cut
their interest rates by at least a half to stimulate growth,"
Among the few Wall Street decliners, U.S.-traded shares of
Research in Motion tumbled 18.2 percent to $7.47 in the
wake of the company's decision on Thursday to delay the
make-or-break launch of its next-generation BlackBerry phones
until next year.
Nike shares dropped 8.2 percent to $89.92 a day
after the world's largest sportswear maker missed quarterly
profit estimates for the first time in at least two years.
Ford Motor Co fell 5.5 percent to $9.54 after the
automaker became the latest large multinational to warn on
weakness stemming from Europe, joining the likes of Procter &
But shares of KB Homes jumped 11.5 percent to $9.69
after the fifth-largest U.S. homebuilder reported a narrower
second-quarter loss, helped by higher sale prices and net