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Aug 21, 2012, 09.34 PM IST
US stocks hit a four-year high on Tuesday as equity markets continue to grind steadily higher on hopes that central banks will act in the near future to stimulate their economies.
The S&P 500 has risen more than 3% so far in August. Much of those gains have come on a few outsized days while other days have seen small incremental gains. Volumes have been light as investors wait for central banks' meetings next month where policymakers are expected to take action to ease Europe's debt crisis and boost the economy.
Talk of ECB intervention in debt markets resurfaced after a weekend report in Germany's Spiegel magazine that the central bank would target specific yield levels as part of any bond-buying program. The ECB tried to quash that speculation on Monday but traders cited a story in British newspaper The Daily Telegraph saying it could confirm the reports that ECB experts were examining plans to effectively cap Spanish and Italian yields.
While that does not advance the process of the ECB actually intervening - still largely dependent on German political leaders' attitude at key meetings next month - investors see that as evidence that the ECB is moving closer to action.
The perception of declining risks from the euro crisis has been a major factor behind equity gains. Yields at a Spanish short-term debt auction dived on Tuesday, while Europe's volatility index hit a one-month low, signaling a steady rise in investors' appetite for risk.
The euro rallied to a seven-week high against the dollar on Tuesday bolstered by talk the European Central Bank will take action to ease Spanish and Italian borrowing costs.
Signs that the US labor market is performing better than previously thought have also helped stocks.
"The S&P 500 is still tracking with the election year roadmap, sporting bullish tendencies during the August-September time frame. This has pushed the index to new recovery highs for 2012," said Dan Wantrobski, director at Janney Capital Markets.
"The drawback to this most recent strength is that although we have achieved new cyclical bull market highs, the action has pushed a good number of stocks and indices into overbought territory on a short-term basis. Thus, we would not be surprised by some consolidation, profit-taking in upcoming sessions."
The Dow Jones industrial average was up 43.10 points, or 0.32%, at 13,314.74. The Standard & Poor's 500 Index was up 6.49 points, or 0.46%, at 1,424.62. The Nasdaq Composite Index was up 10.52 points, or 0.34%, at 3,086.73.
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