Wall Street inches up, but stays shy of record; oil drags

By Yashaswini Swamynathan

(Reuters) - Wall Street eked out gains on Monday as Bank of America's better-than-expected profit boosted optimism about the U.S. quarterly earnings season, but not by enough to send the Dow and the S&P 500 to fresh highs.

SoftBank's $32 billion deal to buy British chip designer ARM Holdings (O:ARMH) lifted U.S. chip stocks, but that was pertly offset by a drop in energy stocks (SPNY) as oil prices dropped after the failed coup attempt in Turkey.

Bank of America's (N:BAC) report continued the momentum for U.S. banks kicked off by JPMorgan (N:JPM) last week. The bank's shares rose 1.6 percent to $13.87, helping the S&P financial index (SPSY) gain 0.36 percent.

"We're now on to the next shiny new object and that's earnings season," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

"As long as companies beat earnings estimates, investors will feel comfortable buying stocks."

Not only is the decline in earnings of S&P 500 components expected to slow to 4.5 percent in the second quarter, from 5 percent in the first, but more companies are expected to beat analysts' estimates, according to Thomson Reuters data.

At 12:29 p.m. ET (1629 GMT), the Dow Jones Industrial Average (DJI) was up 11.4 points, or 0.06 percent, at 18,527.95, about 29 points away from its record intraday high.

The S&P 500 (SPX) was up 3.93 points, or 0.18 percent, at 2,165.67, 3 points shy of its all-time intraday high.

The Nasdaq Composite (IXIC) was up 26.00 points, or 0.52 percent, at 5,055.59.

Five of the 10 major S&P indexes were higher, led by the technology sector's (SPLRCT) 0.8 percent gain.

The SoftBank deal sent ARM's U.S.-listed shares surging 41.5 percent. U.S. chipmakers Broadcom (O:AVGO) and Qualcomm (O:QCOM) were up about 1 percent, while the semiconductor index (SOX) rose 1.5 percent to its highest in 16 months.

Shares of IBM (N:IBM), Yahoo (O:YHOO) and Netflix (O:NFLX) were flat ahead of their results after the close.

Hasbro's (O:HAS) 6.3 percent drop led the decliners on the S&P on concerns of slowing growth in the toymaker's biggest business, which makes toys for boys. Rival Mattel (O:MAT) was down nearly 1 percent.

Advancing issues outnumbered decliners on the NYSE by 1,706 to 1,196. On the Nasdaq, 1,498 issues rose and 1,257 fell.

The S&P 500 index showed 20 new 52-week highs and no new lows, while the Nasdaq recorded 97 new highs and 14 new lows.

Forex - Turkish lira rebounds after failed coup, yen retreats

Investing.com - The Turkish lira rebounded against the dollar on Monday, as Turkey’s government regained control of the country in the wake of a failed coup attempt, while the safe haven yen retreated as market sentiment improved.

The dollar fell 2.71% against the lira to trade at 2.9318.

The dollar had jumped 4.73% against the lira by late trade on Friday after Turkey’s prime minister said there was a coup attempt under way. It was the largest one-day decline in the lira since October 2008.

The traditional safe haven yen was also lower, with USD/JPY advancing 0.86% to 105.78, not far from the three-week highs of 106.30 hit on Friday.

Demand for the dollar continued to be underpinned as upbeat U.S. data on retail sales and industrial output on Friday boosted the outlook for second quarter growth.

The Commerce Department reported that U.S. retail sales rose 0.6% in June, the third straight monthly increase and easily outstripping gains of 0.1% forecast by economists.

Another report showed that industrial production rose 0.6% last month, the biggest increase in eleven months.

The yen remained on the back foot, after falling more than 4% against the dollar last week amid mounting expectations for more aggressive monetary easing by Tokyo to spur growth and inflation.

The euro gained ground, with EUR/USD rising 0.24% to 1.1056 and EUR/JPY up 1.05% at 116.97.

Sterling was also higher, with GBP/USD climbing 0.52% to 1.3249.

The pound had fallen on Friday after the Bank of England’s chief economist said the bank is poised to ease monetary policy in August to counteract the negative economic shock from the Brexit vote.

The comments came a day after the BoE kept interest rates on hold, surprising many market watchers who had expected a rate cut.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased 0.09% to 96.61.

German economy to rebound after weak second quarter: Bundesbank

FRANKFURT (Reuters) - Germany's economy will rebound in the coming months after a weak second quarter and any impact from Britain's decision to leave the European Union in the near future could be limited, the Bundesbank said in a monthly report on Monday.

The euro zone's biggest economy has struggled since a superb first quarter with falling industrial production, weak orders and dropping exports raising doubts about its prospects and suggesting that Germany may be succumbing to a broader global slowdown.

But the Bundesbank dismissed those concerns, arguing that one-off factors were contributing to the poor performance and the economy remains on solid footing.

"The fundamental trend remains quite strong and economic output is expected to significantly increase during the summer quarter," the central bank said.

"The driving factors of the domestically supported upswing remain intact, including the excellent labor market, rising real wages and an expansionary fiscal policy," it said. "The continued favorable business and household sentiment suggests a purely temporary breather in the second quarter."

The bank said estimating the impact of Britain's referendum on EU membership was difficult for now but said for now it only saw a limited near term impact.

Slowing China home price rises add to doubts about economy

BEIJING (Reuters) - Home price rises in China slowed in June for a second straight month, adding to fears that a construction-led rebound in the economy may not be sustainable.

The property market is a key driver of the world's second-largest economy and a robust recovery in home prices and sales gave a stronger-than-expected boost to activity in the first half of the year.

But slowing price growth in smaller cities and cooling property investment show the bounce may already be fading, raising the risk of weaker economic growth in coming months.

Home prices in China's 70 major cities rose 7.3 percent in June from a year earlier, an official survey showed on Monday, accelerating from a 6.9 percent rise in May.

To be sure, some of the biggest cities showed eye-popping gains on a yearly basis, with prices in the southern boomtown of Shenzhen up 46.7 percent and Shanghai up 27.7 percent.

Gains on a monthly basis continued to slow, however, as cities tightened policies amid fears of a housing price bubble.

The monthly rise slowed slightly to 0.8 percent in June, easing from 0.9 percent in May, according to a Reuters calculation based on data issued by the National Bureau of Statistics (NBS).

"We continue to expect the property rebound to subside and property investment growth to fall in the second half of the year," economists at Nomura said in a note, predicting sales would stabilize and a large glut of unsold homes would keep pressure on prices in some areas.

"As such, our long-term view of a gradual (economic) slowdown remains unchanged."

Prices stalled or fell on a monthly basis in 15 cities in June, compared to 10 cities in May, with all of the weakness is smaller cities.

Industrial cities Tangshan, Jinzhou and Baotou went from gains to declines month-on-month in June.

First-tier cities maintained recent rapid price rises, with Shenzhen and Shanghai rising 2.0 percent and 2.6, respectively, on a monthly basis, faster than in May. That could raise the risk of further property cooling measures in some areas.

CRACKS IN THE FOUNDATION

The recovery in China's property market and a government infrastructure building spree in recent months have helped shore up growth in economy, which has been weighed down by weak demand at home and abroad, cooling investment and excess industrial capacity.

But there are increasing signs of fatigue in the nine-month-old property rally, raising concerns about both the economic outlook and banks' heavy exposure to mortgage lending.

Growth in investment in China's real estate sector slowed in first half to 6.1 percent, down from 7 percent in Jan-May, presenting a challenge for policymakers who need the critical sector to maintain growth without creating a price bubble.

For June alone, property investment was up only 3.5 percent from a year ago, according to Reuters calculations, compared with 6.6 percent in May.

Policymakers are facing a tough balancing act. The concern is that tighter mortgage rules in the largest cities have not cooled prices enough, while fragile markets in secondary cities that are beset by oversupply likely need more stimulus to keep prices from sliding again.

After the investment data on Friday, economists at ANZ said that China's property-led recovery was over, which could pose further risks to the economy in the second half of the year.

Forex - Sterling higher as BoE’s Weale says unsure on rate cut

Investing.com - The pound rose to the day’s highs on Monday after Bank of England policymaker Martin Weale said he was unsure if he would support an interest rate cut at the central bank’s August meeting.

GBP/USD rose 0.64% to 1.3265, coming off the lows of 1.3130 hit on Friday.

Weale said he would need to see firmer evidence of the impact of the U.K.’s vote to leave the European Union before supporting at rate cut at next month’s meeting.

“Uncertainty points to the argument that we should wait for firmer evidence before making any policy change,” he said.

“In contrast to the experience of 2008, I do not have any sense that either consumers or businesses are panic-struck and, as I observed, there have been no material signs of financial panic.”

The comments, which came during a speech in London, contrast with the view of most other BoE policymakers.

Last Thursday’s minutes of the BoE’s July meeting gave a clear indication the bank will ease monetary policy next month to counteract the negative economic shock from the Brexit vote.

The BoE kept interest rates on hold at 0.5% in a surprise decision.

On Friday, the BoE’s Chief Economist Andrew Haldane said the bank needs to act"promptly as well as muscularly" to shore up the economy and bolster confidence.

But monetary easing may not necessarily include a rate cut. The BoE could opt to boost quantitative easing or launch new measures to encourage lending.

The pound was also higher against the euro and the yen, with EUR/GBP down 0.39% at 0.8333 and GBP/JPY advancing 1.23% to 140.18.

The traditional safe haven yen weakened broadly on Monday as Turkey’s government regained control of the country in the wake of Friday’s failed coup attempt.

Safe haven assets had initially been bought up by investors on reports of the coup, but those trades were largely unwound on Monday.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, eased 0.14% to 96.56.