A pledge from China to make its exchange rate more flexible boosted materials companies including Alcoa and United States Steel and industrials such as 3M, but gains elsewhere fizzled out as a cut to BNP Paribas's debt rating reminded investors of Europe's economic woes.
The Dow Jones Industrial Average dropped 8.23 points (0.08%) to 10,442.41, its first drop in five sessions. Alcoa jumped 61 cents (5.5%) to $11.72, and 3M climbed 29 cents (0.36%) to $81.47, as investors' expectations for global demand and growth rose after China said it would drop its currency's two-year-old informal peg to the US dollar.
However, the euphoria over China's move faded after Fitch Ratings downgraded its debt rating on BNP Paribas by a notch, citing "structural issues" linked to the French bank's business mix. The euro moved to an intraday low against the dollar following the move, which lowered Paribas's long-term issuer default rating to AA-, three steps below the highest rating of AAA. American depositary shares of BNP fell 38 cents (1.2%) to $30.72.
Among the Dow's decliners, Microsoft dropped 49 cents (1.9%) to $25.95, while Home Depot declined 51 cents (1.6%) to $31.43, and Merck slipped 55 cents (1.5%) to $35.12.
The Nasdaq composite tumbled 20.71 (0.9%) to 2,289.09, snapping a seven-day winning streak and marking the measure's biggest one-day drop in two weeks.
The Standard & Poor's 500 index slid 4.31 (0.39%) to 1,113.20. All of the measure's sectors fell except materials and industrials, which were considered among the biggest potential beneficiaries of China's plans to make its exchange rate more flexible. Among the materials sector's gainers, United States Steel jumped $1.56 (3.6%) to $44.97, while Freeport-McMoRan Copper & Gold climbed $2.18 (3.3%) to $68.08.
Shares of card companies Visa and MasterCard shot higher after US House and Senate Democrats said they reached an agreement that would prevent the Federal Reserve from having wide-ranging authority to regulate network fees, a benefit for Visa and MasterCard because of the reduced oversight over the fees they charge and accrue. Visa jumped $3.86 (5%) to $80.90, while MasterCard advanced $9.08 (4.2%) to $223.34.
US-based Valeant Pharmaceuticals International rose $1.03 (2.3%) to $46.90, and Canada's Biovail climbed $2.07 (14%) to $16.67, after the companies said they plan to merge to create a specialty pharmaceuticals group focusing on neurological products, dermatology and generic medicines in Canada and emerging markets.
Corn Products International fell $2.95 (8.5%) to $31.90, after the food manufacturer announced a $1.3bn acquisition of National Starch. While the proposed deal is seen as accretive by the end of next year, investors are concerned the additional debt burden may also make Corn Products more of a mouthful for perennial suitor Bunge Ltd. to digest. Bunge edged up 80 cents (1.5%) to $54.04.
Global Payments tumbled $3.72 (8.7%) to $38.89, after the company disclosed that Canadian Imperial Bank of Commerce wouldn't renew a 10-year agreement with the credit-card processor that had allowed it to process Visa transactions in Canada.
PPL Corp. slipped 40 cents (1.5%) to $25.66, after the utility company said it has arranged a "significant portion" of its financing for its $6.7bn acquisition of E.ON AG's US operations. PPL plans to sell at least 90m shares and a minimum $1bn of so-called equity unit securities to help fund the deal, announced in April.
For Australian ADRs listed on the NYSE, BHP Billiton gained $1.58 (2.33%) to US$69.41, Rio Tinto Plc advanced $1.24 (2.51%) to US$50.71, ResMed climbed 28 cents (0.44%) to US$63.65, Telstra Corporation rose 55 cents (3.9%) to US$14.65, Telecom Corporation of NZ firmed 9 cents (1.36%) to US$6.73 and Westpac added $1.08 (1.05%) to US$103.71.
At 7:45 AM (AEST), the 10-year Treasury note yield was 3.24% and the five year yield was 2.02%.
European shares climbed on Monday, extending the best winning run in 11 months, with miners standing out after China announced its intention of moving toward greater currency flexibility.
The Stoxx Europe 600 index rose 1% to 257.92 for the ninth straight advance, the first time that's happened since the nine sessions ending July 23, 2009.
Monday's gains came after China stated over the weekend that it will loosen the yuan's defacto peg to the US dollar.
Miners are leveraged to economic growth and the move from China also helped alleviate worries about possible interest rate hikes for the country, a key customer for many mineral extractors.
Miners rallied along with metal futures, with Vedanta Resources up 6%, Norsk Hydro gaining 3.1% and Nyrstar up 2.9%, with the copper contract in particular getting a boost.
The UK FTSE 100 index rose 0.9% to 5,299.11, the German DAX index rose 1.2% to 6,292.97 and the French CAC-40 index advanced 1.3% to 3,736.15.
European exporters were also strong, with firms producing luxury items in particular doing well.
BMW shares advanced 2.7%, Mercedes maker Daimler climbed 3.2%, Swatch shares climbed 4.7% and Richemont shares rose 4.1%.
BP couldn't join in the advance on Monday, trading down 2.2%. The firm, which is battling to stem a massive oil spill in the Gulf of Mexico, said that the total cost to date of the response to the spill has reached $2bn, including the costs of containment, relief well drilling, grants to gulf states and claims paid.
On the FTSE 100, Rio Tinto strengthened 165.00 pence (4.96%) to 3,522.28 pence and BHP Billiton gained 91.50 pence (4.72%) to 2,031.90 pence.
Asian stocks were sharply higher on Monday, while regional currencies and the euro rose against the US dollar after China decided over the weekend to allow greater flexibility in the yuan's exchange rate.
Japan's Nikkei Stock Average gained 2.4%, The Hang Seng Index jumped 3.1% and The Shanghai Composite Index added 2.9%.
New Zealand shares ended higher as risk appetite improved after China's decision over the weekend to allow greater flexibility in the yuan's exchange rate. The NZX-50 ended up 0.7% or 20.75 points at 3,068.25.
Base metals ended higher despite being substantially reined in following strong early gains. Analysts predict the market will hold relatively steady in the week ahead until further details of China's plans to abandon its currency peg are released. Aluminium rose $10 (0.52%) to $1,950 while copper firmed $130 (2.02%) to $6,550 and nickel added $30 (0.15%) to $19,630. Zinc strengthened $30 (1.72%) to $1,770 and lead gained $55 (3.15%) to $1,800. Comex copper was last quoted at 293.00 US cents per pound.
Gold futures pulled back from record highs as rallies in equities and commodities reduced investor appetite for safe-haven assets. Spot gold was last quoted at $1,233.40. Comex gold futures dropped $17.60 (1.40%) to $1,240.70. Spot silver was last quoted at $18.70.
Crude oil settled higher as investors reacted to news over the weekend that China's central bank planned to take steps to allow the yuan to appreciate against the US dollar. West Texas Intermediate was last quoted at US$77.82 per barrel.
At 07:45 a.m. (AET) the US dollar was quoted at 0.8123 euros, 91.04 yen, 1.142 AUD and 67.76 pence.