Stocks rally, dollar gains on central bank stances

By Herbert Lash

LONDON (Reuters) – Global equity markets surged and the dollar hit a nine-year high on Thursday, lifted by the Federal Reserve’s confidence in the U.S. economy and hopes of aggressive new stimulus in Europe.

Stocks on Wall Street rose about 1.7 percent and in Europe equities jumped close to 3 percent as investors’ set aside fears from a few days ago that the collapse in oil prices indicated a slowing global economy.

Brent oil fell and U.S. crude tipped lower, trading near break-even, while prices for U.S. and German government debt fell, on the growing confidence the European Central Bank will launch a bond-buying program to combat slowing economic growth.

In the latest sign of a strong U.S. economy, the number of Americans filing new claims for unemployment benefits fell last week and job cuts declined sharply in December, suggesting a tightening labor market.

In Europe, the president of the ECB said the bank’s Governing Council stands ready to take unconventional measures if needed to stem a prolonged period of low inflation.

In minutes released on Wednesday from its December policy-setting meeting, the Fed appeared to firmly conclude that the U.S. recovery is here to stay, despite a global deflation threat and potential turmoil from plunging oil prices.

“The decline in the price in oil, sure it spoke volumes about potential headwinds for the global economy,” said Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut. “But it seems as ever investors are more optimistic about the likely response from global central banks and that turned confidence around.”

MSCI’s all-country world stock index <.MIWD00000PUS> rose 1.86 percent, while the FTSEurofirst 300 index <.FTEU3> of top European shares surged 2.91 percent to close at a 1,368.85 points. The German <.GDAXI>, French <.FCHI> and Italian <.FTMIB> stock market indexes each rose more than 3 percent.

On Wall Street, the Dow Jones industrial average <.DJI> rose 287.51 points, or 1.63 percent, to 17,872.03. The S&P 500 <.SPX> gained 32.05 points, or 1.58 percent, to 2,057.95. and the Nasdaq Composite <.IXIC> added 76.38 points, or 1.64 percent, to 4,726.84.

A slump in German industrial orders in November and a drop in euro zone consumer inflation expectations reinforced bearish views of the euro, while the U.S. economic data pushed the single currency to a nine-year low, for a fifth day of losses.

The euro fell to $ 1.17540, its lowest since December 2005, on the EBS trading platform, and last traded at $ 1.1804, a decline of 0.28 percent.

The euro’s weakness kept the dollar index <.DXY> at nine-year highs. Against the yen, the dollar climbed to 119.77 yen .

Oil fell below $ 51 a barrel as bulls and bears searched for a floor to the prolonged rout.

Brent crude fell 40 cents to $ 50.75 a barrel. U.S. crude fell 5 cents to $ 48.60 a barrel.

U.S. Treasury debt prices declined as Wall Street rallied and oil prices and on the expectations for an ECB bond-buying program.

Prices of benchmark 10-year Treasuries were off 19/32 to yield 2.0179 percent, after dipping below the 2 percent level on Tuesday for the first time since October.

(Reporting by Herbert Lash; Editing by Leslie Adler)