GLOBAL MARKETS-Shares, euro rise after Bernanke speech

Fri Aug 31, 2012 4:36pm EDT

* Euro, oil, gold prices climb on hopes of future easing

* Bernanke does not explicitly signal imminent monetary easing

* Bernanke's bearish take on unemployment drops bond yields

By Herbert Lash

NEW YORK, Aug 31 (Reuters) - Stocks and the euro rose on Friday after Federal Reserve Chairman Ben Bernanke kept the door open for future monetary easing, although he offered no clear signal of imminent action that markets had hoped for in a much-anticipated speech.

The euro and European shares rose as signs emerged of progress toward a deal to tackle the euro zone's debt crisis.

The dollar dropped to an eight-week low against the euro and two-week low versus the yen after Bernanke said high U.S. unemployment is a "grave concern," remarks that reinforced expectations for further stimulus to revive growth.

Bernanke told central bankers in Jackson Hole, Wyoming, that progress in bringing down unemployment was too slow and that the central bank would act as needed to strengthen the economic recovery.

He also said the Fed had to weigh the costs and the benefits of further stimulus, but he downplayed potential risks from the unconventional policies. He argued the Fed's asset purchases, known as quantitative easing, had been quite effective at boosting growth and fostering job creation.

"I think when he talks about 'grave concern,' that says it all. Further accommodation is coming, it's just a question of how it manifests itself," said Scott Graham, head of U.S. government bond trading at BMO Capital Markets in Chicago.

The Dow Jones industrial average closed up 90.13 points, or 0.69 percent, at 13,090.84. The Standard & Poor's 500 Index rose 7.10 points, or 0.51 percent, to end at 1,406.58. The Nasdaq Composite Index gained 18.25 points, or 0.60 percent, at 3,066.96.

For the week, the three indices declined. For the month, the Dow gained 0.6 percent, the S&P 2 percent and Nasdaq 4.3 percent.

Earlier in Europe, the FTSEurofirst of top regional shares closed up 0.5 percent at 1,082.93 in thin trade, erasing the previous session's losses and ending the month almost flat.

MSCI's all-country world equity index rose 0.5 percent to 322.10.

"The basic problem for investors at this point in time is that everyone knows the Fed considers the current economic performance to be unacceptable, but is it unacceptable enough for them to act today or tomorrow before the election?" said Cary Leahy, senior managing director at Decision Economics in New York.

"I don't think this speech answers that question," he said.

Bernanke said the Fed would provide additional policy accommodation as needed, a remark seen as a somewhat weaker hint of policy easing than the minutes of the Fed's last policy meeting had delivered.

"The market was looking for him to not throw any cold water on the prospects for QE and he didn't throw any cold water on it," said John Canally, investment strategist at LPL Financial in Boston.

"The timing is a little bit iffy, but he didn't come out of the box saying that there has been substantial and sustainable improvement in the economy. Because he didn't do that, I think it's just a matter of time," Canally said.

The August payrolls report is due next Friday, days before the next meeting of the Federal Open Market Committee on Sept. 12-13. Many analysts say there is a strong possibility the Fed will announce a third round of bond-buying at the meeting.

The euro was up 0.6 percent at $1.2581, while the U.S. dollar index was down 0.6 percent at 81.207.

Investors have hoped that more monetary easing would revive economic growth and support demand for oil, for example.

Brent crude settled up $1.92 at $114.57 a barrel, while U.S. crude gained $1.85 to settle at $96.47 a barrel.

U.S. Treasuries yields fell to their lowest levels in three weeks as Bernanke's remarks about the economy raised expectations among bond investors for further stimulus.

The benchmark 10-year U.S. Treasury note was up 23/32 in price to yield 1.5501 percent.

Gold surged in heavy trading to a five-month high after Bernanke's speech.

Spot gold rose 1.8 percent at $1,685.89 an ounce for its biggest one-day gain in two months.

U.S. COMEX gold futures for December delivery settled up $30.50 an ounce at $1,687.60, with the highest trading volume in a month, preliminary Reuters data showed.

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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