August 21, 2012 / 3:27 PM / 5 years ago

GLOBAL MARKETS-Stocks, euro rally on hopes of ECB action

* Wall Street climbs to four-year high on ECB hope
    * Euro rallies to seven-week high versus dollar
    * Spain, Portugal bond yields fall; ECB quells speculation


    By Wanfeng Zhou
    NEW YORK, Aug 21 (Reuters) - U.S. stocks rallied to
four-year highs o n T uesday and the euro hit a seven-week peak
against the U.S. dollar on hopes the European Central Bank will
soon start buying Spanish and Italian bonds to contain the debt
crisis.
    Spanish borrowing costs fell and Portuguese government bond
yields declined to levels seen before it agreed on
a bailout deal in May, 2011, with traders citing media reports
that the ECB was drawing up detailed plans about bond-buying.
    The perception of declining risks from the euro crisis has
been a major factor behind recent equities gains, with the S&P
500 up nearly 3 percent so far in August. But volume has been
light as investors await central banks' meetings next month.
    "I am looking for new highs in the major indexes," said
Wayne Kaufman, chief market analyst at John Thomas Financial in
New York. "Overall there is no one major negative that's out
there right now that people are scared of."
    Britain's The Daily Telegraph on Tuesday supported a weekend
German report that the ECB planned to put a hard cap on Spanish
and Italian bond yields.
    An ECB spokeswoman, asked about the Telegraph story,
referred to the ECB's statement on Monday, when it said it was
misleading to report on policy decisions that had not been
taken. Nevertheless hopes for the plans remain high.
    On Wall street, the Dow Jones industrial average was
up 43.41 points, or 0.33 percent, at 13,315.05. The Standard &
Poor's 500 Index was up 6.51 points, or 0.46 percent, at
1,424.64. The Nasdaq Composite Index was up 15.50
points, or 0.50 percent, at 3,091.71. 
    The MSCI global share index rose 0.8 percent
to 328.02 after hitting its highest level since early May.
European shares advanced 0.5 percent.
    "The ECB must act in the bond market because threats, leaks
and promises have a limited lifespan. Without ECB intervention,
Spanish and Italian rates will rise again as the countries no
longer have the confidence of the credit markets," said Joseph
Trevisani, chief market strategist at Worldwide Markets,
Woodcliff Lake in New Jersey.
    Yields at a Spanish short-term debt auction dived on
T uesday, while Europe's VSTOXX volatility index hit a
one-month low, signaling a steady rise in investors' appetite
for risk. 
    Spanish 10-year bond yields fell 11 basis
points to 6.22 percent, with shorter-dated yields down as much
16 bps. Italian bond yields also dropped.
    Portuguese 10-year yields were last 21 basis
points lower on the day at 9.48 percent, the lowest level since
April 20. Portugal's original request for a bailout was on April
6, 2011 and the deal was announced on May 3 of last year.
    U.S. Treasury debt prices fell. Benchmark yields have
generally been rising since hitting a record low of 1.38 percent
in late July. Ten-year notes were last trading 12/32
lower in price to yield 1.85 percent, up from 1.81 percent late
Monday.
    Financial markets have been on a red-hot run on hopes that
the new urgency in Europe to overcome the 2-1/2-year debt crisis
may allow Greece to remain in the euro zone and keep the
17-member bloc from unravelling.  
    Greek Prime Minister Antonis Samaras will meet German
Chancellor Angela Merkel, French President Francois Hollande and
Eurogroup chief Jean-Claude Juncker in the coming days to try to
secure more funding from the European Union, International
Monetary Fund and ECB, even though Greece has fallen behind on
its debt-cut targets.
    The euro rallied 1 percent to $1.2470, while the
dollar was little changed at 79.39 yen.
    
 
    Brent crude oil rose $1.52 at $115.22 a barrel and
has jumped from below $90 at the end of June, propelled by
maintenance in the North Sea and increased fear of military
conflict between Iran and Israel.
    U.S. crude added $1.38 to $97.35 per barrel.
    Gold rallied to a 3-1/2 month high as the U.S. dollar
weakened, while platinum hovered just below a two-month
peak hit in the previous session as concerns over supply from
top producer South Africa festered.
    Spot gold hit a high of $1,641.20 an ounce and was
last at $1,639.01 an ounce.

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