Stocks close higher on big bank earnings

NEW YORK(AP)�Big banks led stocks sharply higher on Wall Street Friday. JPMorgan surged 6% on a strong earnings report, the biggest gain in the Dow Jones industrial average.

The Dow Jones industrial closed up 1.6%, or 203.82 points to 12,776.09, coming off a six-day slump, the longest losing streak since mid-May.

In other trading, the Standard & Poor's 500 index closed up 1.7%, or 22.02 points to 1,356.78. and the Nasdaq composite index ended up 1.5%, or 42.28 points higher at 2,908.47.

JPMorgan Chase, the country's biggest bank, posted net income of $5 billion for the most recent quarter, easily topping Wall Street's forecasts. It also beat forecasts for revenue. The gain came even as JPMorgan revealed that the loss on a derivative trade it disclosed in May had grown to $5.8 billion, nearly triple the original estimate. JPMorgan's stock rose $2.05 to $36.09.

Wells Fargo, the other major bank reporting results Friday, said a rise in lending helped lift net income 18%. Wells Fargo has managed to avoid problems plaguing other big banks and is now the nation's biggest mortgage lender. The bank's stock gained 3.2%, or $1.06, to $33.91.

Todd Salamone, director of research at Schaeffer's Investment Research, said the rally in bank stocks shows that investors had been preparing for the worst. When they're too gloomy on a company, the slightest bit of good news can jolt its stock up.

Stock trend
Dow Jones industrial average, five trading days

"The bar for earnings is set extremely low, and a lot of people have been betting against banks" he said. "The lower the bar, the easier it is for positive surprises."

Even with the early surge Friday, major market indexes remain on their way to minimal gains for the week. The Dow and the S&P 500 ended the week essentially flat. The technology-heavy Nasdaq, which is more sensitive to swings in the economy, has slumped 1%.

The positive tone in markets continued even though the University of Michigan monthly survey of consumer confidence failed to meet expectations. Its main index dipped to a 2012 low of 72 in July from 73.2 the previous month. The consensus in the markets was for a modest increase to 73.5.

In Europe, the FTSE 100 index of leading British shares closed up 1% at 5,666.13 while Germany's DAX rose 2.2% to 6,557.10. The CAC-40 in France ended 1.5% higher at 3,180.81.

The euro meanwhile was up 0.3% at $1.2240, bouncing back from an earlier two-year low of $1.2160.

Europe's single currency has foundered over recent weeks as Europe's debt crisis has veered from one crisis to another. A recent run of strong U.S. data and few signs that the U.S. Federal Reserve is willing to sanction another monetary easing anytime has also buoyed the dollar in recent days.

However, the currency got a boost Friday as Italy executed a smooth bond auction despite Moody's downgrade of the country. Moody's reduced its rating on Italy by a further two notches, which leaves the country's credit ratings just two notches above so-called junk.

Italy sold �3.5 billion of three-year bonds at an average yield of 4.65%. That was sharply lower than the 5.3% it had to pay at a similar auction in mid-June when investors were acutely concerned about Greece's general election and the scale of the problems in Spain's banks.

"Italy's bond auction went relatively smoothly, perhaps standing in the way of an even larger drop in the single currency," said Vassili Serebriakov, an analyst at Wells Fargo Bank.

Earlier in Asia, Japan's Nikkei 225 index was up 0.1% to 8,724.11 while Hong Kong's Hang Seng rose 0.4% at 19,094.40.

Oil prices tracked equities higher, with benchmark oil for up 78 cents at $86.86 a barrel in electronic trading on the New York Mercantile Exchange.