August 21, 2012 / 4:37 PM / 5 years ago

GLOBAL MARKETS-ECB optimism lifts global shares, euro

* Wall Street hits 4-year high; global index at 3-1/2 month
peak
    * Euro rallies to seven-week peak versus dollar
    * Spain, Portugal bond yields fall; ECB quells speculation


    By Wanfeng Zhou
    NEW YORK, Aug 21 (Reuters) - Global stocks rose to 3-1/2
month highs o n T uesday and the euro jumped to 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 Lisbon
agreed to 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. Wall Street
stocks earlier climbed to four-year highs before surrendering
gains to trade little changed on the day.
    Uncertainty remained high and investors were concerned the
ECB's condition that troubled countries ask for help from the
euro zone's rescue funds before turning to the central bank may
mean that the Spanish crisis could get worse before it gets
better. Still, optimism over eventual ECB action boosted
sentiment.
    "The market has moved to the belief that (the ECB) is going
to do whatever it takes," said William Larkin, fixed income
portfolio manager at Cabot Money Management in Salem,
Massachusetts.
    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.
    On Wall Street, the Dow Jones industrial average was
down 0.70 point, or 0.01 percent, at 13,270.94. The Standard &
Poor's 500 Index was up 1.94 points, or 0.14 percent, at
1,420.07. The Nasdaq Composite Index was up 1.78 points,
or 0.06 percent, at 3,077.99.     
    The S&P 500 has risen more than 3 percent so far in August.
Volume has been light as investors wait for central banks'
meetings next month, where policymakers are expected to take
action to ease Europe's debt crisis and boost the economy.
    "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."
    The MSCI global share index rose 0.6 percent
to 327.31 after hitting its highest level since early May.
European shares were up 0.4 percent.
    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.
    
    EURO RALLIES
    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 unravel ling.  
    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 help from the European Union, International Monetary
Fund and ECB, even though Greece has fallen behind on its
debt-cut targets.
    Samaras is expected to lobby for a two-year extension of
austerity measures to soften their impact, though he is unlikely
to win major concessions.
    The euro rallied 1 percent to $1.2468, while the
dollar was little changed at 79.41 yen.
    
 
    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 11/32
lower in price to yield 1.847 percent, up from 1.81 percent late
Monday.
    Brent crude oil rose $1.10 to $114.80 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 $1.11 to $97.08 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 $1,637.56 an ounce.

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