U.S. stocks bounced higher today in morning trading, helped by news that the federal government had boosted American International Group Inc.s bailout package and China had set a $586 billion economic rescue package of its own.
Paced by solid gains in such blue chips as aluminum maker Alcoa Inc., construction equipment maker Caterpillar Inc., oil company Chevron Corp. and aerospace and defense contractor United Technologies Corp., the Dow Jones industrial average was up 133.65 points, or 1.5%, to 9,077.46 in midmorning activity, off its early session high of 9,158.54.
The S&P 500 index added 10.96 points, or 1.2%, to 941.95.
Shares of AIG surged nearly 30% after the government boosted the insurers bailout to $150 billion. On Sunday, the Chinese government announced plans to spend $586 billion by the end of 2010 on infrastructure and other projects to generate economic growth.
The China plan gave a lift to overseas markets, with Japans Nikkei 225 index gaining 5.8%, Hong Kongs Hang Seng index adding 3.5% and Londons FTSE 100 rising 1.6%.
But Tony Crescenzi, chief bond market strategist at institutional trading firm Miller Tabak & Co., said that despite the markets strong reaction to the China economic plan, its not likely to help the U.S.
News of China's massive economic stimulus plan has helped markets worldwide, but for the U.S., the impact will be reduced by a number of important factors, Mr. Crescenzi wrote in a research note today. For starters, China must, of course, finance its plan, which could mean it will have to either sell its holdings of U.S. Treasury and agency securities or slow its rate of accumulation in these securities (China holds about $1 trillion of U.S. securities). This will be necessary if Chinas budget surplus continues to shrink and if Chinas accumulation of foreign exchange reserves slows, as it surely will as a result of the global economic slowdown.