Stocks rally, bonds fall on Europe debt optimism
NEW YORK (Reuters) - Global stocks rose and bond prices fell on Monday as hopes European leaders are moving to enact bold steps to aid debt-laden euro zone nations revived risk appetite and reduced demand for safe-haven assets.
The Dow Jones Industrial Average and Standard & Poor's index rallied more than 2 percent in a late-day surge on a report that said a plan to leverage the European Financial Stability Facility was in an advanced stage.
Silver fell as much as 16 percent and gold slid more than 7 percent at one point, hit by heavy selling by commodity hedge funds seeking to raise cash to meet recent losses in other asset classes.
European officials are considering providing seed money for a special purpose vehicle that would issue bonds and buy European sovereign debt in an effort to contain the euro zone debt crisis, CNBC television reported.
The 440 billion euro rescue fund's assets could be used as collateral to borrow from the European Central Bank, making more money available to stop the crisis spreading, ECB executive board member Lorenzo Bini Smaghi said in New York.
Bini Smaghi said it was up to European Union governments to decide how to borrow from the ECB in the effort to quell a crisis that threatens to derail a fragile global recovery.
Markets have whipsawed for months over fears of European debt contagion and hopes that officials will finally contain the long-simmering crisis.
"Europe is a day-to-day story, it seems like we flip-flop back and forth over whether Greece is going to get the bailout they want and how concerned the markets are about Greece," said James Newman, head of Treasury and Agency trading at Keefe, Bruyette and Woods in New York.
"I don't see that ending any time soon," he said.
Financials were among the session's best performers, with the KBW bank index .BKX jumping 5.3 percent.
The Dow Jones industrial average .DJI ended up 272.38 points, or 2.53 percent, at 11,043.86. The Standard & Poor's 500 Index .SPX gained 26.52 points, or 2.33 percent, at 1,162.95. The Nasdaq Composite Index .IXIC was up 33.46 points, or 1.35 percent, at 2,516.69.
Shares of Boeing Co (BA.N) rose 4.2 percent after the first delivery of its long-awaited Dreamliner.
MSCI's all-country world equity index .MIWD00000PUS rose 1.2 percent after spending much of the session under water.
The FTSEurofirst 300 .FTEU3 index of top regional European shares closed up 1.75 percent.
Government debt prices on both sides of the Atlantic fell on reports the European Union was looking at boosting the region's 440 billion euro rescue fund and other ways to avert a Greek debt default.
The 30-year U.S. Treasury bond fell 1-23/24 points to yield 2.99 percent. The benchmark 10-year U.S. Treasury note was down 20/32 in price to yield 1.90 percent.
In Europe, 10-year Bund prices fell to yield 1.83 percent.
The euro was down most of the session against the dollar and yen as doubts lingered about efforts by European policymakers to contain the debt crisis kept investors cautious.
In late trade, the euro was just above break-even at $1.3508.
Oil prices were mixed in volatile trading on views Europe will resolve the debt crisis.
Brent crude for November delivery fell 3 cents to settle at $103.94 a barrel, while U.S. November crude rose 39 cents to settle at $80.24 a barrel, having bounced off $77.11 earlier in the session.
"These are very critical days and weeks ahead, reminiscent very much of the touch-and-go situation we were in back in 2008," said Edward Meir, senior commodities analyst at brokers MF Global. "The key difference this time around is that it is countries and not companies that are in danger of going bust."
Gold futures fell as investors scrambled for cash in the face of mounting fear over the impact of a potential Greek default.
Bullion has lost 11 percent over a four-session sell-off, its worst four-day drop since February 1983.
U.S. gold futures for December delivery settled down $45 at $1,594.80 an ounce in heavy trade.
Silver fell as much as 16 percent.
(Reporting by Ryan Vlastelica, Karen Brettell, Robert Gibbons and Julie Haviv in New York; Writing by Herbert Lash; Editing by Dan Grebler)
(Reporting by Karen Brettell, Gertrude Chavez-Dreyfuss and Rodrigo Campos in New York; Simon Jessop, Anirban Nag, Emelia Sithole-Matarise, Joanne Frearson and Amanda Cooper in London and ; Writing by Herbert Lash, Editing by Dan Grebler)
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