GLOBAL MARKETS-Stocks, bonds jump after Summers drops Fed bid

Mon Sep 16, 2013 2:02pm EDT

* U.S. dollar falls as Summers withdraw from Fed
consideration
    * Summers was seen as more hawkish than Yellen
    * View that monetary policy to stay easy for longer drives
moves
    * U.S. stocks advance; Apple limits Nasdaq's rally


    By Ryan Vlastelica
    NEW YORK, Sept 16 (Reuters) - Stocks and bonds on major
markets rallied on Monday after former U.S. Treasury Secretary
Lawrence Summers withdrew from consideration to be the next
chairman of the Federal Reserve, leading investors to believe
U.S. monetary policy might stay looser for longer. 
    Signs of progress in reducing tensions in the Middle East,
after a Russia-brokered deal on Syria's chemical weapons also
helped to support stocks. 
    Summers' surprise decision on Sunday came just ahead of the
Fed's policy meeting on Tuesday and Wednesday, when the U.S.
central bank is expected to begin to scale back its asset
purchases from the current pace of $85 billion a month. 
    With the withdrawal of Summers, who was considered more
hawkish, investors wagered that U.S. monetary policy would stay
easier for longer should the other leading candidate for Fed
chair, Janet Yellen, the Fed's current vice chair, get the job.
Ben Bernanke's term as Fed chairman expires in
January. 
    "His passing as a contender for the top role has left in its
wake a significant risk-on rally," said Andrew Wilkinson, chief
economic strategist at Miller Tabak & Co in New York.
    The Dow Jones industrial average was up 138.38
points, or 0.90 percent, at 15,514.44. The Standard & Poor's 500
index was up 12.92 points, or 0.77 percent, at 1,700.91.
The Nasdaq Composite Index was up 6.72 points, or 0.18
percent, at 3,728.90. Gains in the Nasdaq were limited by a 2.1
percent decline in Apple Inc shares.
    European shares rose 0.7 percent while the MSCI
all-country world equity index rose 1 percent.
    With Summers' withdrawal, it was even possible a first Fed
interest rate rise could be pushed out to 2016, rather than 2015
as currently expected, said Chris Rupkey, chief financial
economist at Bank of Tokyo-Mitsubishi UFJ. Going by Yellen's
past speeches, Rupkey said she would probably prioritize
reducing unemployment.
    "Yellen looks like the clear front-runner and seems to be
the public's popular choice," Rupkey said. "The Fed will shoot
to lower the unemployment rate to the full employment level, and
this means the new target could be more (like) 5.5 percent, not
6.5 percent."
    The benchmark 10-year U.S. Treasury note was up
8/32 in price, with the yield, which moves inversely to price,
at 2.8606 percent. German Bunds tracked the moves
and were last at 1.884 percent, well down on last week's peak of
2 percent.
    The more distant Eurodollar contracts rallied as the market
pared back expectations for how quickly the Fed might finally
start to tighten policy, as opposed to just tapering its
bond-purchase program.
    Contracts from late 2014 out to 2016 all made double-digit
gains suggesting a hike was now considered more likely
in 2015 rather than in late 2014. 
    
    DOLLAR DIVE
    The U.S. dollar index slipped 0.3 percent to 81.244,
near an intraday trough of 81.029, its lowest level since Aug.
21. It fell 0.4 percent against the yen while the euro
 rose 0.35 percent to $1.3339. Liquidity in the yen was
lacking, with Japanese markets closed for a holiday on Monday.
 
    In the latest U.S. data, industrial output rose 0.4 percent
in August, as expected, while manufacturing output rose 0.7
percent, a slightly faster rate than had been forecast.
    MSCI's broadest index of Asia-Pacific shares outside Japan
 gained 1.6 percent overnight as South Korean
shares added 1 percent, Australia's rose 0.5
percent and Indonesian stocks jumped 3.4 percent.    
   
    
    PUSHING OUT THE HIKE    
    Sentiment was underpinned by Saturday's deal between Russia
and the United States to demand that Syrian President Bashar
al-Assad account for his chemical arsenal within a week and let
international inspectors eliminate all the weapons by the middle
of next year. 
    Emerging market stocks were up 1.6 percent and
most emerging Asian currencies were on the front foot, with
India's rupee leading the charge. Investors have pumped much of
the cheap money from the Fed into emerging markets. 
    Gold fell 0.7 percent, while Brent crude lost
1.4 percent to $110.13 a barrel and U.S. crude futures 
sank 1.2 percent to $106.97 per barrel.
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