GLOBAL MARKETS-Shares, dollar gain on strong U.S. trade data

Tue Jan 7, 2014 4:44pm EST

* U.S. trade gap smallest in four years

* European equity markets rise on hopes of economic recovery

* Dollar gains on trade data, might boost U.S. GDP estimates

* Oil rises on Mideast, U.S. supply concerns

By Herbert Lash

NEW YORK, Jan 7 (Reuters) - Global equity markets rose and the dollar strengthened on Tuesday on encouraging jobs data from Germany and news of the lowest U.S. trade deficit in four years, the latest evidence of a more robust American economy.

The U.S. Commerce Department said the trade gap fell 12.9 percent to $34.3 billion in November, the smallest deficit since October 2009. October's trade shortfall was revised down to $39.3 billion from a previously reported $40.6 billion.

The bigger-than-expected decline - economists polled by Reuters forecast November's trade deficit would slip to $40.0 billion - could spur higher fourth-quarter growth estimates.

In Europe, an unexpected fall in German unemployment last month on a seasonally adjusted basis was the first drop since July. The decline bolstered hopes domestic consumption could boost growth in Europe's biggest economy.

Investors also welcomed a successful Irish debt sale, the government's first since the country exited an international bailout in December, as an indication Europe's battered periphery was on the road to recovery. European equity indexes rose to 5-1/2 year highs, led by heavy trade in Spain.

The upbeat trade data helped turn sentiment in U.S. equity markets after a slow start to the year, building on a record flow of investment to stocks and related securities in 2013.

"We're getting a nice little snapback following a pretty soggy first couple of days, which created some anxiety because some people think that sets the tone for the year," said Nicholas Colas, chief market strategist of the ConvergEx Group in New York.

"Volume and news remain light, but people expect this year to be positive so the negative start probably got a bit overdone," Colas said.

U.S.-listed equity mutual funds and exchange-traded funds took in a record $352 billion in 2013, topping a previous record $324 billion in 2000, according to TrimTabs Investment Research.

MSCI's all-country world stock index rose 0.35 percent, while the FTSEurofirst 300 index of top European shares gained 0.8 percent to 1,319.74, its highest closing level since mid-2008.

Spain's IBEX index surged 2.9 percent on volume that was more than double an average session.

The benchmark S&P 500 chalked up its first gain of the new year, and the Nasdaq jumped 1 percent before paring some gains.

The Dow Jones industrial average closed up 105.84 points, or 0.64 percent, at 16,530.94. The S&P 500 rose 11.11 points or 0.61 percent, to 1,837.88 and the Nasdaq Composite added 39.501 points, or 0.96 percent, to 4,153.182.

Healthcare was the leading sector after Deutsche Bank upgraded UnitedHealth Group Inc to "buy."

Shares of UnitedHealth, a Dow component, jumped 3.1 percent to $77.51, while Tenet Healthcare climbed 4.9 percent to $46.10, one of the S&P's biggest percentage gainers.

Earlier, Asian shares fell for a fourth day, led by a 0.6 percent drop on Tokyo's Nikkei index.

The dollar gained, buoyed by the U.S. trade data. Stronger growth could prompt the Federal Reserve to speed up the tapering of its monthly bond purchases.

However, Eric Rosengren, president of the Federal Reserve Bank of Boston, said low inflation keeps the U.S. economy vulnerable and he reiterated a warning that policy stimulus should be removed "only gradually." Rosengren is one of the most dovish of U.S. central bankers.

The dollar traded 0.34 percent higher at 104.56 yen, but remained below a five-year peak of 105.44 yen set last week. The euro was last down 0.09 percent at $1.3615.

The dollar index, which tracks the greenback against a basket of six major currencies, was up 0.25 percent at 80.854 .

Brent oil rose above $107 a barrel after five straight declines, supported by glitches at a handful of North American refineries that curtailed supply, and as new worries arose over Libyan output and fighting in Iraq.

Brent crude rose 62 cents to settle at $107.35, after settling lower in the previous five sessions. U.S. crude settled 24 cents higher at $93.67.

U.S. government bond prices rose, with the 10-year U.S. Treasury note up 5/32 in price to yield 2.9428 percent.

German Bund futures settled up 22 ticks at 139.76 euros.

Bumper demand for Ireland's debt sale pushed its borrowing costs to an eight-year low and the Spanish government's costs to the lowest since 2009.

Demand for Irish 10-year debt was nearly four times the 3.75 billion euro issue, boosting sentiment across the euro zone periphery and pushing down regional bond yields. The sale could make it easier for Portugal to exit its bailout.

Irish 10-year bond yields fell to 3.27 percent, 10-year Greek yields fell to their lowest since June 2010 at 7.83 percent and Portuguese yields dropped to 5.42 percent - their lowest since last May.

Ten-year Spanish yields fell to their lowest since December 2009 at 3.798 percent and equivalent Italian yields were at 3.88 percent.

Gold fell as a stronger dollar and the rebound in U.S. stock prices prompted investors to take profits in bullion after five straight sessions of gains. U.S. gold futures for February delivery settled down $8.40 at $1,229.60 an ounce.