Stocks climb to records; bonds slip on factory data

The second half of 2014 got off to a strong start for investors Tuesday. Strong auto sales and positive economic news from China led prices higher.

The Dow Jones industrial average gained 129.47 points to 16,956.07. The index came within two points of 17,000 earlier in the session. The Nasdaq composite index was up 50.47 points to 4,458.65 and the Standard & Poor’s 500 Index rose 13.09 points to 1,973.32.

Employment reports for June will be featured in the next two days starting with the ADP update on civilian payrolls Wednesday.

Federal Reserve Chair Janet Yellen will address an international finance conference and is expected to clarify economic policy.

Gold closed at its highest level since April 14, up $4.60 to $1,326.60 an ounce. Oil fell 3 cents to $106.09 a barrel.

The yield on 10-year Treasuries added four basis points to 2.57 percent.

An index of U.S. factory output was little changed near a five-month high, boosting confidence in the world’s largest economy and fueling speculation that growth is robust enough for the Federal Reserve to raise interest rates next year.

General Motors Co. (NYSE: GM) surprised investors with a U.S. sales gain in June, while Ford Motor Co. (NYSE: F), Chrysler Group LLC and Nissan Motor Co. all beat estimates.

U.S. retail sales had their biggest weekly gain in almost three years, ICSC data showed.

China’s manufacturing expanded in June at the fastest pace this year, while Euro-area output grew at a slower pace.

The S&P 500 on Monday capped a streak of six quarterly gains, its longest since 1998, as global stocks rallied in the past three months. The MSCI All-Country World Index jumped 4.3 percent for a fourth straight gain. It added 0.6 percent to an all-time high Tuesday.

The MSCI index of emerging-market equities climbed 5.6 percent, its best quarter since September 2012, while the Stoxx 600 in Europe added 2.3 percent.

Bullion had surged 10 percent this year and Treasuries rose in the first half to almost erase last year’s losses, as the U.S. economy contracted while conflict in Iraq and Ukraine fueled demand for the safest securities.

The Institute for Supply Management’s manufacturing index was 55.3 last month, little changed from a five-month high of 55.4 in May, a report showed today. Readings greater than 50 indicate expansion.

Producers of wood products, furniture, metals and machinery were among those seeing a pickup in demand as gains in auto and home sales rippled through the world’s largest economy.

Growing consumer spending, lean inventories and improving overseas markets will probably keep assembly lines busy in the second half of the year.

Adjusting for seasonal trends, the annualized pace of U.S. auto sales may have accelerated to 16.3 million in June, the average of 14 analysts’ estimates compiled by Bloomberg, from 15.9 million a year earlier.

Retail sales climbed 4.6 percent last week, ICSC data showed. Retailers rallied 1.5 percent and carmaker shares jumped 1.4 percent.

International Business Machines Corp. (NYSE: IBM) surged 2.9 percent for the biggest gain in the Dow. Small-cap stocks rallied, with the Russell 2000 Index (RTY) adding 1 percent and briefly touching an all-time high.

The S&P 500 advanced 1.9 percent in June for its fifth straight monthly increase and trades at 16.7 times the projected earnings of its members, its highest valuation in four years.

The benchmark gained 6.1 percent in the first half, as data from employment to housing fueled confidence that the U.S. economy is rebounding after the worst contraction in gross domestic product since 2009.

Treasuries’ decline Tuesday extended the first monthly drop since March, on speculation growth is robust enough for the Federal Reserve to raise interest rates next year.

Other reports this week may yield further clues on the strength of the U.S. economy.

Earnings for S&P 500 companies probably grew 5.2 percent during the second quarter while sales rose 3.2 percent, analyst estimates compiled by Bloomberg show.

The forecasts are lower than they were at the beginning of April, when analysts projected earnings to rise 7.3 percent and sales to increase 3.7 percent.

In China, manufacturing expanded in June at the fastest pace this year, data Tuesday showed.

Markets in Hong Kong were closed Tuesday and the Shanghai Composite Index added 0.1 percent.

In Europe, all but two of the 19 industry groups in the Stoxx 600 advanced, with lenders and commodity producers leading gains.

Bilfinger SE tumbled 19 percent after the German builder cut its full-year profit forecast. Kloeckner & Co SE, the German steel trader, fell 4 percent as Credit Suisse Group AG recommended selling shares of the German steel trader.

The pound gained 0.3 percent to $1.7157 and 10-year gilt yields jumped four basis points to 2.71 percent. An industry index rose to 57.5 in June from 57 in May, Markit Economics said Tuesday.

Bloomberg contributed to this report.

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