U.S. Stocks Rise on Summers’ Exit, Syria Weapons Deal

U.S. stocks and Treasuries rose, and the dollar fell, after Lawrence Summers withdrew his bid to be the next Federal Reserve chairman and America and Russia agreed on a plan to remove Syria's chemical weapons.

The Standard & Poor's 500 Index added 0.6 percent to 1,697.39 at 9:30 a.m. in New York. Ten-year Treasury yields dropped eight basis points, or 0.10 percentage point, to 2.79 percent, according to Bloomberg Bond Trader data. The greenback slumped against all of its Group of 10 currency peers.

Summers withdrew from contention before a two-day Fed meeting starting tomorrow, at which the central bank is forecast to begin paring bond purchases known as quantitative easing. Summers would tighten policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.

"Investors are saying that QE may not be as aggressively dialed back under Yellen, who is now the front-runner," Walter "Bucky" Hellwig, who helps manage $17 billion at B&T Wealth Management in Birmingham, Alabama, said in a telephone interview. "QE is still a very important factor in the minds of investors and we can see this in the potential movement of the stock and bond markets."

Summers, 58, was one of three names that Obama had mentioned as possible replacements for Bernanke, whose term as Fed chairman ends on Jan. 31. Yellen, 67, the current Fed vice chairman, was also on Obama's candidate list along with Donald Kohn, 70, a former Fed vice chairman, the president said earlier.

Economic Data

The S&P 500 rose 2 percent last week to close within 1.3 percent of its record high. Treasuries trading was closed in Japan today for a holiday, and the securities advanced when markets opened in London.

Investors have been weighing data to determine the timing and pace of any reductions in stimulus. A report today showed manufacturing in the New York region expanded ! less than forecast in September even as orders and shipments picked up, while factories' outlooks improved.

Separate data showed industrial production rose in August by the most in six months, indicating U.S. manufacturing will contribute more to the expansion.

The U.S. central bank will reduce its $85 billion in monthly bond-buying by $10 billion this week, according to the median forecast of economists in a Bloomberg News survey.

'Aggressive Tightening'

"Summers had been seen as a person who can add volatility to the market given his bias toward more aggressive tightening, should he take up the Fed chairmanship," Gary Dugan, the Singapore-based chief investment officer for Asia and the Middle East at Coutts & Co., said in a telephone interview. "This brings Janet Yellen to the forefront and the consensus is she'll build a follow-through of Bernanke's policies."

The S&P 500 has rallied 3.4 percent so far in September, rebounding from the worst monthly loss since May 2012, as reports showed China's economy strengthened and the U.S. looked less likely to attack Syria.

The U.S. and Russia struck a deal on Sept. 14 demanding the destruction of Syria's chemical weapons by mid-2014, with the U.S. saying it maintained a military option to ensure compliance.

The dollar has depreciated 1.2 percent in the past week, the biggest drop among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. Treasuries lost 0.4 percent in September to the end of last week, heading for a fifth monthly decline, according to the Bloomberg U.S. Treasury Bond Index.

'Shorter Maturities'

"Markets were priced for the likelihood of a Summers nomination, primarily for the notion that he might raise interest rates sooner than perhaps other candidates, including Janet Yellen," Tony Crescenzi, a portfolio manager and strategist at Newport Beach, California-based Pacific Investment Management Co., which runs the world�! �s bigges! t bond fund, said in an e-mail. "This news should result in outperformance of shorter maturities" before the Federal Reserve Open Market Committee meeting starting tomorrow.

Summers had been the president's favorite for the job. Twenty U.S. senators, 19 Democrats and one independent, signed a letter of support for Yellen in July, who would be the first female Fed chairman if nominated and confirmed.

Former Treasury Secretary Timothy Geithner, sometimes mentioned as another alternative, doesn't want the Fed post and has made that clear since leaving the Treasury early this year, according to a person familiar with his thinking, who asked for anonymity to discuss private conversations.

Dovish Stance

"Summers withdrawing helps to crystalize the outlook and it does put the market on a more dovish stance going forward," Tai Hui, the Hong Kong-based chief Asia market strategist at JPMorgan Asset Management, which oversees about $1.5 trillion, said by telephone. "Obviously we have other names, but the reality seems a bit more support for Yellen after Summers' exit from the race."

A poll of investors, analysts and traders who are Bloomberg subscribers, conducted Sept. 10, showed Yellen was viewed more favorably. Sixty percent of respondents had a positive view of Yellen, compared with 37 percent for Summers.

Options traders have scaled back hedges against potential stock losses. The CBOE Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, last week capped an 11 percent five-day drop, its biggest weekly slide since the week ended July 5.