XOM Exxon Mobil Corp

By Ellie Ismailidou and Victor Reklaitis, MarketWatch

Energy shares tumble, weighed by drop in oil; financials rally

U.S. stocks moved higher Thursday, as surprisingly strong stimulus measures from the European Central Bank outweighed a renewed rout in oil prices.

The S&P 500 was up 10 points, or 0.5%, at 1,994, led by gains in the health-care and materials sectors. The Dow Jones Industrial Average added 67 points, or 0.4%, to 17,066, led by a 2.2% gain in Goldman Sachs Group, Inc (GS). Meanwhile, the Nasdaq Composite was up 23 points, or 0.5% at 4,698.

The ECB's stimulus, which by far exceeded investors' expectations, dropped a bombshell on markets, shooting equities higher in Europe and in the U.S.

The ECB cut the bank's key lending (http://www.marketwatch.com/story/european-central-bank-cuts-rates-expands-asset-buying-program-2016-03-10)rate to zero from 0.05% and pushed the rate on its deposit facility to minus 0.4% from minus 0.3%. It also announced it would expand the size of its monthly bond purchases to EUR80 billion ($86.86 billion) from its current level of EUR60 billion beginning in April and expand the scope of those purchases to include investment-grade, euro-denominated, nonbank corporate bonds.

The stimulus measures helped U.S. stocks hold on to gains despite a fresh drop in oil prices (http://www.marketwatch.com/story/crude-prices-tumble-as-report-questions-likelihood-of-key-oil-producer-gathering-2016-03-10), breaking a recent strong correlation between oil and stock prices.

The reason is that the ECB's announcement assuaged the market's concerns about global economic slowdown on hopes that the European economy will continue to strengthen, thus favoring risk assets across the world, said Tom Wilson, senior investment manager at Brinker Capital.

Still, the drop in oil prices weighed on shares of energy companies, with the S&P energy sector being the only sector on the index posting negative performance, down 0.6%. Energy giant Exxon Mobil Corporation (XOM) was the worst performer on the Dow.

Meanwhile, the ECB's announcement was particularly good news for bank shares, said KC Mathews, chief investment officer with UMB Bank, because as part of the ECB's new stimulus measures, the central bank will effectively pay banks to take loans through a new round of targeted longer-term refinancing operations (TLTRO's).

Indeed, European bank shares drove sharply higher, such as Spain's Banco Popular Español SA, which rose 6% and Italy's UniCredit SpA, which surged 9.6%

According to Mathews, the rally could have a positive spillover effect on the U.S. financial sector, which experienced a sharp selloff earlier this year amid worries about the effect of ultralow interest rates on banks' balance sheets. The S&P financial sector was the third-best performing sector on the index, up 0.8%.

In Europe the initial impact of the announcement wore off somewhat, after ECB President Mario Draghi said during his news conference (http://www.marketwatch.com/story/heres-what-a-radical-european-central-bank-would-do-2016-03-09) that he doesn't anticipate a need to cut rates further, but "facts can change."

The euro (http://www.marketwatch.com/story/dollar-higher-ahead-of-ecb-new-zealand-dollar-dives-after-rate-cut-2016-03-10) (http://www.marketwatch.com/story/dollar-higher-ahead-of-ecb-new-zealand-dollar-dives-after-rate-cut-2016-03-10) reversed early weakness to jump back above $1.10 and European stocks, which had surged on the news (http://www.marketwatch.com/story/european-stocks-step-higher-as-market-waits-for-ecb-2016-03-10), lost some of their momentum.

The ECB's moves come a week ahead of the Federal Reserve's policy meeting March 15-16. The Fed has said it is on a path to raising rates, which differs from the ECB's current moves. However, a strengthening dollar as the other foreign central banks enact monetary-easing policies, in an effort to boost stubbornly low inflation and sluggish growth, could complicate the Fed's efforts.

Another data point, jobless claims, offered additional cause for optimism (http://www.marketwatch.com/story/jobless-claims-fall-to-5-month-low-of-259000-2016-03-10) for investors. Jobless claims fell to a five-month low of 259,000, suggesting layoffs are shrinking and the labor market is on a steady footing. Economists polled by the MarketWatch had expected initial jobless claims to total a seasonally adjusted 275,000 in the seven days stretching from Feb. 28 to March 5.

Read more: 5 things to watch at today's key ECB meeting (http://www.marketwatch.com/story/5-things-to-watch-for-at-thursdays-key-ecb-meeting-2016-03-08) (http://www.marketwatch.com/story/us-stocks-show-signs-of-struggle-as-oil-prices-pull-back-2016-03-02)

Other markets:Asian markets (http://www.marketwatch.com/story/new-zealands-surprise-rate-cut-gives-asian-markets-a-bump-2016-03-09) closed mostly flat or higher after a surprise New Zealand rate cut. Gold futures inched higher, and a key dollar index surged.

Individual movers: Dollar General Corp. (DG) shares rose 7.3% after the retailer posted better-than-expected earnings and raised its dividend (http://www.marketwatch.com/story/dollar-general-beats-profit-expectations-raises-dividend-2016-03-10).

Vail Resorts Inc. (MTN) traded 0.5% higher after its reported profit was better than expected (http://www.marketwatch.com/story/vail-resorts-profit-up-on-higher-visits-prices-2016-03-10).

Box Inc (http://www.marketwatch.com/story/box-shares-rise-as-results-top-expectations-2016-03-09-17485554). (BOX) soared 10% after investors cheered its better-than-expected earnings report (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=1&cad=rja&uact=8&ved=0ahUKEwjQ5r-rrbbLAhXHFx4KHS2MAT4QqQIIHCgAMAA&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Fbox-shares-rise-as-results-top-expectations-2016-03-09-17485554&usg=AFQjCNGljziP9_OmoWpsOXWbnZ3fCqFdZA&sig2=N87yw-IWRb0o7p-A1_KyMg&bvm=bv.116573086,d.dmo) late Wednesday.

El Pollo Loco Holdings Inc. (LOCO) and Ulta Salon Cosmetics & Fragrance Inc. (ULTA) are due to report quarterly results after the closing bell.

(END) Dow Jones Newswires

March 10, 2016 10:34 ET (15:34 GMT)

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