U.S. shares spike on euro zone optimism; Dow up 1.31%

Investing.com - U.S. stocks closed sharply higher Tuesday, supported by optimism linked to Spain’s financial bailout, although concerns over the country’s financial troubles and political uncertainty in Greece continued to weigh on investor confidence. 

At the close of U.S. trade, the Dow Jones Industrial Average rose 1.31%, the S&P 500 index gained 1.17%, while the Nasdaq Composite index added 1.19%.

Stocks climbed despite the U.S. federal budget balance falling less-than-expected last month, official data showed on Tuesday.

In a report, Department of the Treasury said that U.S. federal budget balance fell to a seasonally adjusted -124.6B, from 59.1B in the preceding month.

Analysts had expected U.S. federal budget balance to fall to -125.0B last month.

Investors were cautious as questions remained over the source of Spain’s rescue funds and whether the bailout repayments would add to the country’s already high borrowing costs.

The yield on Spanish 10-year bonds climbed to 6.65% earlier, hovering close to the critical 7% threshold, which is seen as unsustainable in the long term.

Markets were also jittery ahead of Sunday’s general election in Greece, which could decide the course of the country’s future in the euro zone.

In the tech sector, Apple shares rose 0.40% after Canaccord Genuity raised its price target on the company to USD800 from USD775. 

The upgrade came a day after Apple's annual Worldwide Developers Conference largely failed to impress investors, even after the company unveiled its next-generation MacBook Air and MacBook Pro laptops in addition to a new version of its mobile operating system, iOS 6.

Financial stocks were also broadly higher as shares in Bank of America jumped 0.96%, Goldman Sachs climbed 0.72% and Citigroup surged 1.74%. 

Goldman Sachs said earlier that it had rehired veteran banker Mark Schwartz in the role of chairman of its Asia Pacific unit, based in Beijing, becoming the first global investment bank to place its sole regional chairman in China's capital.

JP Moran fell 0.37% however, following reports that a number of its executives and directors had been aware of risky practices by a team of London-based traders two years before botched bets cost the bank over USD2 billion.

Also on the downside, billionaire investor Warren Buffett's Berkshire Hathaway Inc. saw shares fall 0.37% after offering to buy Residential Capital LLC's mortgage unit, according to court papers filed Monday.

In addition, NetJets, a private jet-sharing company owned by Berkshire Hathaway, said it would buy up to 425 new business jets from Bombardier Inc. and Cessna in a deal worth USD9.6 billion to expand its North American and European fleet.

Among earnings, shares in Texas Instruments jumped 1.56% after the chipmaker narrowed its second-quarter forecast, saying it expects earnings per share to now fall between 32 cents to 36 cents, from a previous estimate of 30 cents to 38 cents. 

Michael Kors soared 7.83% after the designer clothing and handbag maker beat profit expectations and handed in a full-year earnings and revenue forecast that exceeded estimates.

Across the Atlantic, European stock markets were higher. The EURO STOXX 50 climbed 0.51%, France’s CAC 40 added 0.21%, Germany's DAX advanced 0.64%, while Britain's FTSE 100 rose 0.32%.

During the Asian trading session, Hong Kong's Hang Seng Index shed 0.65%, while Japan’s Nikkei 225 Index slumped 1%.

Also Tuesday, official data showed that U.S. import prices fell 1% in May, in line with expectations, following a flat reading the previous month. 

At the close of European trade, the EURO STOXX 50 climbed 0.27%, France’s CAC 40 rose 0.14%, while Germany’s DAX 30 advanced 0.33%.

Investors are anticipating New Zealand’s rate statement, U.S. core retail sales and PPI on Wednesday.