Stocks, oil, euro surge on German-Franco pledge

NEW YORK Mon Oct 10, 2011 7:33pm EDT

French President Nicolas Sarkozy (R) and German Chancellor Angela Merkel (C)  arrive to address a news conference at the Chancellery in Berlin October 9, 2011.  REUTERS/Fabrizio Bensch

French President Nicolas Sarkozy (R) and German Chancellor Angela Merkel (C) arrive to address a news conference at the Chancellery in Berlin October 9, 2011.

Credit: Reuters/Fabrizio Bensch

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NEW YORK (Reuters) - The euro jumped while world stocks and crude oil rallied for a fourth straight session on Monday following a pledge by Germany and France to unveil new measures to solve the festering European debt crisis.

Wall Street gained 3 percent and European markets rose almost 2 percent after German Chancellor Angela Merkel and French President Nicolas Sarkozy said on Sunday their goal was to come up with a sustainable answer for Greece's debt woes.

The S&P 500 rose above its 50-day moving average for the first time since late July, a bullish technical signal on Wall Street, while stocks rose across the board in Europe, with economically sensitive sectors performing the best.

The euro rose the most against the U.S. dollar in 15 months while oil settled about 3 percent higher. Still, skepticism was high, given the lack of detail on the European leaders' plans.

"For now, the markets are rallying on the belief that there is forward momentum on dealing with the European bank crisis," said Andrew Busch, senior currency strategist at BMO Capital Markets.

"To me, this is an exercise in placing funding sand bags around the global banks to ensure they are not flooded by the rising river level of a Greek default," he said.

Merkel and Sarkozy said they would agree on how to recapitalize European banks and present a plan for accelerating economic coordination in the euro zone by a G20 summit in Cannes, France on November 3-4.

A spokesman for the German government emphasized that the talks are no "miracle cure.

Sentiment was also bolstered on news that French and Italian industrial output was surprisingly strong in August, while German exports were at a record high.

The Dow Jones industrial average .DJI closed up 330.06 points, or 2.97 percent, at 11,433.18. The Standard & Poor's 500 Index .SPX rose 39.43 points, or 3.41 percent, at 1,194.89. The Nasdaq Composite Index .IXIC gained 86.70 points, or 3.50 percent, at 2,566.05.

World stocks rose sharply, climbing 2.6 percent as measured by MSCI's all-country world index .MIWD00000PUS.

The FTSEurofirst 300 .FTEU3 index of top European regional shares posted a 1.7 percent gain to 963.89, the highest close in more than five weeks.

The benchmark index of European shares and the S&P 500 are both up about 10 percent since the U.S. benchmark briefly entered bear market territory -- considered a 20 percent drop from its recent peak -- at the session's low on October 4.

The KBW index of banking shares .BKX jumped 5.3 percent, with JPMorgan Chase & Co (JPM.N) gaining 5.2 percent to $32.30 and Bank of America (BAC.N) climbing 6.4 percent to $6.28.

The gains, however, came on the lightest day of trading in more than two months and may not be indicative of a long-term trend. The advance has been driven by short-covering and managers buying stocks as they try to catch up to the sharp rally built on headlines out of Europe.

"There's basically a rally coming off deeply oversold levels. It seem like investors are reacting to even neutral signs of hope the European debt situation will be solved," said Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon.

"Traders are shorting the dollar, and using funds there and piling into risk-based assets," including equities, he said.

A move to nationalize Franco-Belgian bank Dexia (DEXI.BR) also bolstered sentiment, since it was seen as an indication that governments would step in and keep large lenders from going under.

The Dexia rescue showed European governments "can act quickly and decisively," boosting hopes for real results on Merkel's and Sarkozy's promises, said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Extended short bets in the euro added to the currency's momentum as traders rushed to exit positions, lifting the single currency more than 2 percent to a near three-week high.

The euro, which was on track for its best daily rise since July 2010, climbed 1.9 percent to $1.3647 after paring some earlier gains.

"We're seeing risk coming back on and that's helping the euro," said Marc Chandler, global head of currency strategy at brown Brothers Harriman in New York.

Crude oil rose on improved optimism. November Brent crude futures settled up $3.07 at $108.95, while U.S. November crude rose $2.43 to settle at $85.41.

U.S. gold futures for December delivery settled up $35 at $1,670.80 an ounce.

Spot gold prices rose $37.80 to $1,676.30 an ounce.

The market for U.S. Treasuries was closed in observance of the Columbus Day holiday.

(To read Reuters Global Investing Blog, double-click here; for the MacroScope Blog, double-click on blogs.reuters.com/macroscope; for Hedge Fund Blog, double-click on blogs.reuters.com/hedgehub)

(Reporting by Caroline Valetkevitch, Wanfeng Zhou, Matthew Robinson and Robert Gibbons in New York; Writing by Herbert Lash; Editing by Dan Grebler)

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