Stocks advance on earnings optimism as gold rises, pound slumps

U.S. stocks rose for a fourth day amid optimism companies will report better-than-forecast earnings for the second quarter. Gold advanced and the yen weakened, while the British pound touched a three-year low.

The MSCI All-Country World Index climbed 0.9% at 3:25 p.m. in New York and the Standard & Poor’s 500 Index rose 0.8%, erasing its loss since the Federal Reserve’s June meeting. The pound slid after U.K. manufacturing unexpectedly shrank in May. Treasury three-year yields were little changed after the U.S. sold $32 billion of the notes today at the highest yields since June 2011. Gold rallied 1%, while corn and wheat jumped more than 2% as dry, warm U.S. weather increased the risk of crop damage.

Earnings reports have helped fuel stock gains in the four-year-old bull market. The S&P 500 rallied an average of 1.6% in the two weeks after Alcoa Inc. marked the start of the reporting season, according to data compiled by Bloomberg. Stocks were up two weeks later in 13 of the 17 reporting seasons since the bull market began in 2009. Analysts have lowered forecasts for last quarter and currently predict profit growth of 1.8% for S&P 500 companies, compared with a projection for an 8.3% increase at the beginning of the year.

“The economic data is suggesting that we’re not going to see earnings roll over,” Brian Jacobsen, who helps oversee $221.2 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said by telephone. “Expectations for second-quarter earnings had fallen quite a bit and we’re beginning to see that the downgrades were by too much. We could see some pleasant surprises in the earnings season.”

IMF Forecasts

Global stocks remained higher even after the International Monetary Fund said worldwide economic growth will struggle to accelerate this year. Global growth will be 3.1% this year, unchanged from the 2012 rate, and less than the 3.3% forecast in April, the IMF said. The IMF reduced its 2013 projection for the U.S. to 1.7% growth from 1.9% in April, while next year’s outlook was trimmed to 2.7% from 3%.

The IMF urged central banks in wealthy nations facing low inflation and economic slack to keep injecting stimulus until recovery is entrenched, saying rising longer-term interest rates have hurt emerging markets the most. The developing economies need to be alert for financial risks if the “anticipated unwinding” of the U.S. Federal Reserve’s bond-buying program reverses capital flows, the IMF said.

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