GLOBAL MARKETS-Shares, bonds extend gains on easing fear of early Fed exit

Thu Jun 27, 2013 4:34pm EDT

* Wall St extends gains for third day
    * Fed bond buying could be more aggressive than new timeline
- Dudley
    * Prices of U.S. Treasuries rise after strong debt auction


    By Angela Moon
    NEW YORK, June 27 (Reuters) - Global equity markets and
bonds extended gains on Thursday, showing further signs of
stabilizing from a dramatic selloff as concerns receded that the
Federal Reserve would begin to unwind its stimulus efforts
earlier than expected.
    U.S. Treasuries prices rose, continuing to recover from last
week's steep decline, as a sale of 7-year debt drew more
aggressive bidding than markets had expected. 
    Treasuries slumped last week after U.S. Federal Reserve
Chairman Ben Bernanke said the Fed could pull back on its   
$85-billion-per-month bond buying program soon as the economy
improves. But prices have largely firmed this week after the
selloff took yields to their highest in 22 months.
    U.S. stocks rose for a third straight day, with the S&P 500
posting its best three-day run since January after three Fed
policymakers sought to downplay the notion that the central bank
would bring an imminent end to its accommodative monetary
policy, known as quantitative easing.
    A number of upbeat U.S. economic reports on the housing
sector and consumer spending further eased worries over whether
the world's biggest economy could withstand the winding down of
the Fed's monetary stimulus.
    "I think the Fed is trying to delicately prepare the markets
for an eventual ending of QE3," said David Carter, chief
investment officer at Lenox Wealth Advisors in New York.
    "The Fed has bent over backwards to introduce this huge
program over the past few years to get the economy going. The
last thing the Fed wants to do is pull the plug too fast and
have the economy go down the drain."
    On Thursday, William Dudley, president of the Federal
Reserve Bank of New York, said the Fed's asset purchases would
be more aggressive than the timeline Bernanke had outlined if
U.S. economic growth and the labor market prove weaker than
expected.
    Dudley stressed that slowing the pace of the Fed's bond
buying would depend not on calendar dates but on the economic
outlook, which remained unclear. 
    Equities have been volatile ever since Bernanke's comments
last week. The benchmark S&P 500 dropped as much as 4.8
percent in the days following a June 19 statement from Fed
policymakers. The benchmark index has now risen about 2.7
percent over the past three sessions after numerous Fed
officials have sought to calm markets bothered by expectations
of tighter monetary policy.
    In Treasuries trading, the benchmark 10-year note
 was up 18/32, the yield at 2.474 percent, compared
with a price gain of 12/32 shortly before the seven-year debt
sale.
    The 30-year bond rose 27/32 in price, its yield
at 3.5316 percent after the auction, in which the Treasury sold
$29 billion of seven-year notes at a high yield of 1.932
percent, the highest yield since July 2011.
    
    MARKETS RECOVER
    European shares ended higher, with the FTSEurofirst 300
 index of top European shares rallying for a third
straight day to close 0.7 percent higher at 1,157.42.
    The index, still down nearly 8 percent since late May,
managed to cross back above a major resistance level
representing the index's 200-day moving average, sending a
positive technical signal.
    MSCI's world share index rose 1 percent
after touching its highest in a week.
    The Dow Jones industrial average ended up 114.35
points, or 0.77 percent, at 15,024.49. The Standard & Poor's 500
Index  was up 9.94 points, or 0.62 percent, at 1,613.20.
The Nasdaq Composite Index  was up 25.64 points, or 0.76
percent, at 3,401.86.
    With the yield on benchmark 10-year U.S. government debt
appearing to have stabilized at around 2.5 percent, euro zone
bonds from Germany to Greece were able to claw back some of the
ground lost during the recent global selloff. 
    Reflecting the recent rise in yields generally over the last
few weeks, Italy paid its highest rate since March at a 5
billion euro auction of 10- and 5- year debt. But healthy demand
boosted its bonds to top the list of euro zone periphery
performers. 
    Markets also focused on a deal hammered out by European
authorities overnight designed to shift the burden of paying for
bank bailouts away from taxpayers, although economists' opinions
on the deal were mixed. 
    In other asset markets, Brent crude oil futures rose
for a fourth straight session, up 1.1 percent to settle at
$102.82 a barrel. U.S. crude also rose, ending up $1.55
at $97.05 a barrel. 
    The dollar slid against the euro. The euro was up 0.2
percent against the dollar at $1.3040, with the session
low at $1.2999.
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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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