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Dow hits 10-week high as 'double-dip' fears ease

July 26, 2010 |  3:41 pm

Suddenly, investors live in a perfect world: There’s enough money out there to push the stock market higher and keep bond yields down.

Enjoy it while it lasts.

Wall Street, continuing to see the economic glass as half full rather than half empty, on Monday drove share prices broadly higher for a third straight session, though trading volume was thin.

The Dow Jones industrial average (charted below) rallied 100.81 points, or 1%, to close at 10,525.43, its highest finish since May 17.

Industrials Although rising stock prices often trigger selling in the Treasury bond market -- as money comes out of bonds and goes into stocks -- on Monday the Treasury market was little changed. The 10-year T-note yield held at 2.99%, the same as on Friday.

Plenty of risk-averse investors still must be reluctant to let their Treasuries go.

Yet, despite constant chatter about the potential for a double-dip recession, U.S. equities have rebounded sharply this month, paring their spring losses.

The Standard & Poor’s 500 index, which fell 16% from April 23 to July 2, gained 1.1% to 1,115.01 on Monday. It’s now down 8.4% from its April 23 close and up 8.2% this month.

Market technicians noted that the S&P on Monday closed above its 200-day moving average for the first time since June 22. Many chart-watchers see that as a sign of market strength. And plenty of people are chart-watchers these days, for better or worse.

After rallying 3.5% last week, the S&P maintained its momentum after the government reported June new-home-sales data that were better than expected, albeit still depressed. FedEx also helped the mood after raising earnings projections for the year.

It didn’t hurt that European stocks were mostly higher on the first day of market reaction to the results of Europe’s “stress test” of its banks. The data, reported on Friday, showed that most banks passed the test -- which investors seemed to take at face value, even though many analysts were dubious about the veracity of the testing.

Many foreign equity markets this month have been much faster to shake off double-dip-recession worries, as I noted in my weekend column in The Times. See this post too.

If fear levels are dropping in the stock market, should there still be such a robust appetite for Treasury bonds? That appetite will be tested this week as Uncle Sam sells a total of $104 billion of new two-, five- and seven-year notes on Tuesday, Wednesday and Thursday, respectively.

-- Tom Petruno