GLOBAL MARKETS-Central bank pro-growth policies lift shares, oil

Thu Aug 1, 2013 11:09am EDT

* Europe's central banks follow Fed in leaving policy unchanged

* Official Chinese data and euro zone PMIs point to growth

* Dollar up from six-week low, euro dips

* European shares higher, oil gains

NEW YORK, Aug 1 (Reuters) - Shares, the dollar and crude oil all climbed on Thursday, with the S&P 500 stock index topping 1700 for the first time, as central banks in the euro zone and Britain joined the Federal Reserve in keeping monetary policy accommodative.

The European Central Bank and the Bank of England both ended policy meetings by leaving rates at record lows, a day after the Fed said the U.S. economy still needed its support and avoided any mention of a change to its stimulus measures.

The promise of abundant liquidity came as data for July revealed industrial activity picking up in the euro zone for the first time in two years, greater stability in China's vast factory sector and a surge in British production.

U.S. manufacturing grew in July at its quickest pace in four months as output and new orders increased and firms took on more workers, an industry report showed on Thursday.. A separate showed manufacturing growth was at its highest in two years.

"Bottom line, it's still free money everywhere - whether it is in the U.S., the Bank of England, the ECB - they are all saying the same thing and everyone is kind of loving it," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

The Dow Jones industrial average was up 124.34 points, or 0.80 percent, at 15,623.88. The Standard & Poor's 500 Index was up 16.54 points, or 0.98 percent, at 1,702.27. The Nasdaq Composite Index was up 37.77 points, or 1.04 percent, at 3,664.14.

The better outlook encouraged investors back into riskier assets, lifting MSCI's world equity index nearly 1 percent, sparking a rally in major euro zone government bonds and sending U.S. crude up 2.4 percent to $107.57 a barrel .

The dollar index, which tracks the greenback's performance against a basket of major currencies, gained 0.92 percent to 82.199, though still not far from a six-week low touched on Wednesday after the Fed's policy announcement. The U.S. data caused a big jump in the dollar as investors took it as a sign of steady improvement in the U.S. economy.

Hopes are also rising that Friday's key July U.S. payrolls report will point to another solid rise in jobs.

However, traders said a strong employment report would increase the likelihood the Fed could begin scaling back its stimulus in September - a move that could hurt the gains in equities and commodities though it would support the dollar.

"We're very much looking for the dollar to continue to gain support, given the heightened expectations for nonfarm payrolls, which are centred around the 200,000 mark," said Ian Stannard, head of European FX strategy at Morgan Stanley in London.

Employment outside the farming sector is seen rising by 184,000 during July, according to economists polled by Reuters.

The euro slipped 0.5 percent to trade around $1.3226, off Wednesday's six-week high of $1.3344.

CHINA STABILISING

The encouraging Chinese manufacturing data, along with some strong corporate earnings and central bank actions, combined to lift European shares 0.9 percent.

Earlier, after the improvement in China's official industrial activity survey eased concerns of a sharp slowdown in the world's second-largest economy, Japan's Nikkei jumped 2.5 percent for its biggest one-day gain in three weeks.

In the fixed income markets, U.S. Treasuries prices extended losses on Thursday after the ISM report. The benchmark 10-year Treasury note was down 22/32, sending its yield to 2.67 percent.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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