MARKET REPORT: European bank tests buoy Dow

— Investors bought stocks Friday on the latest reassuring news about the economy. This time, it was about European banks.

European regulators, who issued the results of what are called “stress tests” on the banks, said only a handful would struggle if the continent’s economy weakens. That helped send the Dow Jones industrial average up more than 100 points.

The latest second-quarter earnings reports also persuaded investors that the economic recovery is proceeding. And so did announcements that General Electric Co. is raising its dividend and reports that French drugmaker Sanofi-Aventis is interested in buying Genzyme Corp.

Investors were initially cautious about the stress tests, which measure how well banks will fare if government debt problems and the region’s economy worsened. Europe’s debt issues have sent stocks falling worldwide since April amid concerns they could slow the global economic recovery.

There were some concerns in the market that the tests might not have been rigorous enough. And because the results were issued after theclose of trading in Europe, it won’t be known until Monday how investors on the continent react. And, if they react badly, if that will prompt U.S. investors to sell.

Financial stocks, which had struggled early in the day, started to climb after the results were released.

Brian Peardon, a wealth adviser at Harrison Financial Group, said there could be an initial, “gut” reaction to the results based on the headlines alone, but the full impact on the market won’t come untilnext week because there is so much information to sort through.

“It will take the weekend to digest whether they’re good or bad,” Peardon said.

And some analysts were skeptical because there was little known about the criteria used to test the banks.

“There’s obviously a lot of smoke and mirrors in these types of tests,” said Albert Meyer, portfolio manager of the Mirzam Capital Appreciation Fund. “They no doubt provide us with numbers thataren’t too alarming, even if they are correct.”

Investors who have shuttled between buying and selling for weeks on uneven economic and earnings numbers have now had two straight days of upbeat news. On Thursday, stocks surged after Caterpillar Inc., UPS Inc. and other companies released results and forecasts that reassured investors who were disappointed by the first wave of second-quarter announcements.

The Dow closed up 102.32, or 1 percent, at 10,424.62 after rising 201 on Thursday. The Standard & Poor’s 500 index rose 8.99, or 0.8 percent, to 1,102.66, while the Nasdaq composite index rose 23.58, or 1.1 percent, to 2,269.47.

Rising stocks outpaced those that fell by a 4-to-1 ratio on the New York Stock Exchange, where consolidated volume came to 4.56 billion shares.

The major indexes had a winning week, rebounding from the previous week’s loss. The Dow rose 3.2 percent, the S&P 500 rose 3.5 percent and the Nasdaq picked up 4.2 percent.

Germany’s DAX index rose 0.4 percent, Britain’s FTSE 100 fell less than 0.1 percent, and France’s CAC-40 rose 0.2 percent.

Business, Pages 26 on 07/24/2010

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