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U.S., European stocks rise on earnings as bonds gain

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(Bloomberg) — U.S. stocks rose amid a rally in phone shares and optimism over corporate earnings. Bonds advanced, while the ruble weakened as the European Union and U.S. prepared new sanctions against Russia.

The Standard & Poor’s 500 Index gained 0.3 percent at 10:26 a.m. in New York, and the Stoxx Europe 600 Index rose 0.6 percent. The yield on 10-year Treasuries declined 1 basis point to 2.47 percent before a Federal Reserve policy decision.

Germany’s 10-year yield fell 3 basis points to an unprecedented 1.119 percent, and rates from Finland to Italy also dropped to records. The ruble depreciated 0.4 percent while gold reversed an earlier advance.

Windstream Holdings Inc. led a rally in phone shares. Merck & Co. gained after the drugmaker reported profit that beat estimates, while United Parcel Service Inc. slipped after lowering its full-year forecast. Fed policy makers start a two- day meeting today as data showed consumer confidence increased to the highest since 2007 while U.S. home prices rose at the slowest pace in more than a year. The U.S. and the EU may move as soon as today to impose tougher sanctions on Russia.

“The broader backdrop still sits on a solid footing,” Will R. Nasgovitz, a Milwaukee-based portfolio manager at Heartland Advisors Inc. said in a phone interview. His firm oversees $6.1 billion. “There is concern around what the Fed is doing in terms of when they might raise rates.

“We don’t know how Europe is going to play out with Russia/Ukraine,” he adds. “The same is true for the Middle East. People are looking for confirmation that the outlook for the second half this year is in place.”

Fed Decision

The Fed’s Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion on July 30, according to economists surveyed by Bloomberg, keeping it on pace to end the program late this year. The policy-making committee last month repeated that it’s likely to “reduce the pace of asset purchases in further measured steps” and that it expects interest rates to stay low for a “considerable time” after the bond-buying ends.

Chair Janet Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed’s 2 percent goal. Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up 192 percent from its March 2009 bottom. The S&P 500 is trading at 18.1 times earnings of its members, around the highest valuation for the gauge since 2010.

Economic Data

The S&P/Case-Shiller index of property values in 20 cities increased 9.3 percent from May 2013, the smallest year-to-year advance since February 2013, after rising 10.8 percent in the year ended in April, the group said today in New York.

The Conference Board’s index of U.S. consumer confidence increased to 90.9 in July, the highest since October 2007, from 86.4 a month earlier, the New York-based private research group said today. The median projection in a Bloomberg survey of 75 economists called for a reading of 85.4 in July.

“Risk assets globally continue to be supported by the fact that the Fed is in no hurry to hike interest rates,” said Alvin T. Tan, the director of foreign-exchange strategy at Société Générale SA in London. “Our economists are expecting the U.S. data to come out on the positive side.”

Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.

Corporate Earnings

American Express Co. and Newmont Mining Corp. are among other S&P 500 companies reporting earnings today. About 78 percent of those that have posted results this season have beaten analysts’ estimates for profit, while 65 percent exceeded sales projections, data compiled by Bloomberg show.

Merck rose 1.5 percent after reporting quarterly earnings that topped analysts’ projections. UPS slipped 3.3 percent after cutting its full-year forecast as second-quarter profit fell short of estimates.

Windstream Holdings Inc. surged 21 percent after saying it plans to spin off certain telecommunications network assets into a real estate investment trust.

Phone companies in the S&P 500 jumped 3.6 percent as a group, the most since August 2011. Frontier Communications Corp. climbed 15 percent and CenturyLink Inc. rallied 8.1 percent. Verizon Communications Inc. and AT&T Inc. led gains in the Dow, increasing more than 2.1 percent. European Shares

European stocks rebounded from a two-day drop. Ferrovial SA rose 1.1 percent after the Spanish construction company posted first-half profit that exceeded projections and said it will buy back shares. Next Plc advanced 2.9 percent after the retailer increased its annual profit and sales forecasts.

Renault SA slid the most in two months as the French carmaker revealed that it is consuming more cash than it did a year ago. UBS AG dropped 1.4 percent after Switzerland’s largest lender reported a 36 percent drop in pretax profit, falling short of projections.

Banco Espirito Santo SA’s shares fell 9.7 percent after a Portuguese newspaper said the lender will report the nation’s biggest-ever banking loss when it publishes its results tomorrow.

The rally in European bonds, fueled by unprecedented central bank stimulus and subdued inflation, sent German yields below the previous record set at the height of the euro area’s sovereign debt crisis. Finland’s 10-year rate fell to 1.254 percent and Italy’s dropped to 2.647 percent. All-time lows were also set for Ireland, Belgium, France, Spain, Netherlands and Austria.

Russia Sanctions

Tougher sanctions may be imposed against Russia as Vladimir Putin’s government formulates its response to growing international pressure over the conflict in Ukraine.

The sanctions target “key sectors” of Russia’s economy — finance, defense and energy — and are being imposed in the face of Putin “doubling down” in support of separatists battling Ukrainian troops, U.S. Deputy National Security Adviser Tony Blinken said yesterday. EU governments agreed yesterday to impose travel bans and asset freezes on Putin’s “cronies.”

Ruble Slides

The ruble traded as low as 35.75, the weakest level since May 5. Russia’s February 2027 bond also declined for a fourth day, sending the yield 7 basis points higher to 9.41 percent. The Finance Ministry canceled its second ruble bond auction in a row, citing “unfavorable market conditions.”

The Micex Index of Russian stocks rose 0.9 percent, rebounding after a two-day slide that dragged the gauge down to the lowest close since May 6.

Markets in Turkey, the United Arab Emirates, Qatar, Indonesia, Malaysia, the Philippines, Sri Lanka and India are closed for holidays.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, added 0.2 percent to 1,016.49, the highest since June 5. The dollar rose 0.2 percent to 102.10 yen, the highest since July 7. The U.S. currency gained 0.2 percent to $1.3412 per euro. The shared currency was little changed at 136.93 yen.

Gold fell 0.3 percent to $1,301.50, erasing an earlier gain of 0.7 percent. Palladium traded near a 13-year high.

West Texas Intermediate crude declined 1 percent to the lowest level in almost two weeks before data on fuel supplies and economic strength in the U.S., the world’s biggest oil consumer.

–With assistance from Paul Dobson, Cecile Vannucci, Stephen Kirkland and Shelley Smith in London.