Business Blog Posts

Spanish Prime Minister Jose Luis Rodriguez Zapatero urged the G20 countries least affected by the crisis to provide "urgent stimulus plans" to shield the global economy.

Europe's debt crisis looks set to dominate the summit of Group of 20 leading economies in France from November 3-4.

The gathering in Cannes will take place a week after euro zone leaders reached a deal to recapitalize their banks, boost the firepower of a euro zone rescue fund and impose hefty losses on holders of Greek debt.

"We hope these deals, together with those made by the G20 next weekend ... restore the confidence needed to keep the economy moving," Zapatero told leaders at the Ibero-American summit in Paraguay.

"I hope they will rise to the challenge next week. The United States has a role, the Federal Reserve has a role, all the central banks of big countries have their role -- of course, China, India, Brazil, the Europeans and Japan," he said during a news conference.

"The G20's response has two key elements. Firstly, those of us who have been working to consolidate our fiscal position cannot change course. But those countries that have the margin to incentivize economic activity have to adopt urgent stimulus plans. If not, the global economy will be affected."

In the last 18 months, Zapatero has made cuts and implemented reforms to show Spain is serious about fiscal discipline and to avoid a sell-off in its debt on concerns it would need a Greek-style bailout.

Portuguese Prime Minister Pedro Passos Coelho told leaders gathered in Asuncion the "crisis was not just European."

"This is a global crisis," said. "It's a crisis that calls on all of us, whether in Europe, in Latin America or any other continent."

A source from the Portuguese delegation said Passos Coelho asked Mexican President Felipe Calderon to tell fellow G20 members that Washington should help resolve the crisis "by boosting trade and also with financial help."

"The European Union has already responded to the crisis. It hopes to find in the G20 setting a global response to a crisis that is systemic and global," the source added, speaking on condition of anonymity.

Financial markets rallied strongly this week after European leaders hammered out the crisis deal, although analysts quickly warned that details of the rescue could still take weeks or even months to work out.

But some underperforming investors are being cornered into putting yet more money into U.S. stocks.

The S&P 500 on Friday closed its fourth week of gains and is up more than 13 percent in October alone. But many, including hedge funds, were caught wrong-footed by the rally.

Even though some pullback may be expected next week, the clearer picture after the European deal "should give a green light for many of the funds to get back in risk assets," according to Robert Francello, head trader at hedge fund Apex Capital, which manages about $2 billion in San Francisco.

"Hopefully we'll be able to see some further gains into the year end," he said.

Hedge funds, among the equity market's power players, are on average sitting on losses of 8 percent for the year according to Hedge Fund Research. Meanwhile, the S&P 500 is up for the year, if only a bit more than 2 percent.

A JPMorgan note to clients following Thursday's 3 percent rally on the U.S. benchmark index argues for a "strong foundation for an equity rally into year end," with a 1,400-1,475 target.

That's more than the 8 percent gain hedge funds would need to come out of the red for the year.

"If you're a hedge fund manager and you want to put money to work it feels like it has to be on the long side: buying stocks, buying risky assets," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.

"For the moment, you've taken away major risk in Europe and you've replaced it with a potential positive in stock valuations and no double-dip."

European leaders reached a long-awaited agreement to boost the region's bailout fund and struck a deal with banks and insurers who will take a 50 percent loss on their Greek bonds.

A more disorderly default from Greece, and the possibility of sovereign defaults spreading in Europe, were part of the reason the S&P 500 closed its worst quarter since 2008 in September.

The market was also relieved after data earlier this week showed the U.S. economy grew at its fastest pace in a year in the third quarter.

A heavy flow of job market data, capped on Friday by the government's monthly report of job payrolls, will be closely watched to confirm the upbeat macroeconomic trend. A Reuters poll of economists shows employers created 95,000 jobs in October.

EARNINGS AND FED TO POWER ON THE RALLY

More than 100 S&P 500 companies will report earnings next week, with Lowes, Pfizer and Kellogg among the highlights.

Among the more than 300 that have already posted earnings for the past quarter, roughly seven out of 10 have reported better numbers than analysts expected.

Some expect the Federal Reserve to announce another round of asset purchases -- similar to the quantitative easing plan set up last year that sparked a year-long rally in stocks.

An equities rally following Fed purchases would most likely be led by commodity-related sectors, said Apex Capital's Francello.

"The Fed is beginning to lay the groundwork for another round of quantitative easing, so that should also put some wind in the back of risk assets," he said.

CHARTS ALSO LOOK BULLISH

The technical picture is also turning bullish, with the S&P moving this week above its 200-day moving average for the first time since early August.

At 1,285 the S&P faces resistance just below 1,300, an RBC Capital Markets note said, but the year-end trend for stocks points higher.

"We're still in a period of high volatility so you can't take anything for granted," said Colas from ConvergEx Group.

"Do you buy the dips? I believe that is the case."

(Reporting by Rodrigo Campos; additional reporting by Svea Herbst; Editing by Kenneth Barry)