NEW YORK World equity markets rose on Friday as investor fears of euro zone turmoil following Greek elections this weekend were offset by talk the world's major central banks stand ready to make a coordinated response to ease any market dislocation.
The euro rebounded and U.S. stocks shrugged off a new batch of weak factory data, while U.S. consumer sentiment fell in early June to a six-month low, according to a survey.
But anxiety that Greece could fail to form a government after Sunday's elections led investors to raise their safe-haven bond holdings, driving up U.S. government debt prices.
A measure of market fear in the equities market, the CBOE Volatility Index .VIX, was up about 2 percent or more for most of the session, but closed down 2.6 percent at 21.12.
"Ahead of Sunday's election in Greece, central bankers stand ready, again," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
"With all the water central banks have expended out of their fire hoses over the past few years in their attempt to 'do something,' I can only think of magic candles. Those candles you blow out that only flare up again immediately after."
Central banks from Tokyo to London prepared for any turmoil following Greece's election, with the European Central Bank hinting at an interest rate cut and Britain set to open its coffers.
Officials from the Group of 20 major industrial and emerging nations told Reuters on Thursday that the top central banks stand ready to stabilize markets by providing liquidity if the election result causes financial upheaval.
A coordinated action is likely to support risk appetite, although any bounce could prove temporary given Spain's elevated borrowing costs and the risk of contagion to Italy, the euro zone's third-largest economy.
G20 leaders meet in Mexico on Monday and Tuesday as the results of the Greek vote and market reactions emerge.
On Wall Street, the Dow Jones industrial average .DJI closed up 115.26 points, or 0.91 percent, at 12,767.17. The Standard & Poor's 500 Index .SPX rose 13.74 points, or 1.03 percent, at 1,342.84. The Nasdaq Composite Index .IXIC added 36.47 points, or 1.29 percent, at 2,872.80.
Earlier in Europe, the FTSE Eurofirst 300 .FTEU3 index of top European shares closed up almost 1.0 percent, with European bank stocks .SX7P climbing 1.8 percent.
MSCI's all-country world equity index .MIWD00000PUS rose 1.2 percent to 305.94, and emerging markets .MSCIEF gained 1.4 percent.
Disappointing data showed a worsening U.S. economy, which increases the chance the Federal Reserve will announce an extension of its Operation Twist bond-buying program, or launch a new quantitative easing program when it meets next week.
"People came to realize that global central bank intervention will only emerge if something bad happens," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
"But, if the pro-bailout party wins in Greece on Sunday, that would be good news.
Yields on the 10-year U.S. Treasury note fell at one point to 1.564 percent, the lowest in about 10 days. The note later traded to yield 1.5807 percent, with prices up 18/32.
German Bund futures, another traditional safe haven, extended gains, accelerating their rise after the release of the U.S. economic data. Bund futures settled at 142.29, up 46 ticks on the day.
U.S. manufacturing output contracted in May for the second time in three months, the Fed said, and the New York Fed's "Empire State" index fell in June to the lowest level since last November. The Thomson Reuters/University of Michigan's index on consumer sentiment fell to 74.1 in June.
The euro hit a session low of $1.2590 against the dollar, but then rebounded and was up 0.1 percent at $1.2663.
The U.S. dollar index .DXY fell 0.6 percent to 81.488.
Brent crude edged up in thin trade, while U.S. crude seesawed near flat for most of the session. A weaker dollar, along with gains on Wall Street, lent some support to oil. <USD/>
Brent crude settled 44 cents higher at $97.61 a barrel. U.S. crude rose 12 cents to settle at $84.03 a barrel.
Gold rose for a sixth consecutive session as investors bet on additional stimulus by central banks and hedged against uncertainty ahead of the Greek elections.
U.S. COMEX gold futures for August delivery settled up $8.50 at $1,628.10 an ounce.
(Reporting By Herbert Lash; Editing by Dave Zimmerman, Leslie Adler, James Dalgleish and Dan Grebler)