ECB, U.S. data help buoy euro, global stocks

NEW YORK Thu Feb 6, 2014 4:27pm EST

1 of 7. Traders work on the floor of the New York Stock Exchange February 3, 2014.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - The euro rose against the dollar on Thursday after the European Central Bank gave no sign of an imminent rate cut and stocks on Wall Street had their best day this year as strong jobless data boosted confidence in the economy.

Relative calm in vulnerable emerging markets such as Turkey and South Africa also supported riskier assets and drew investors away from safe-haven U.S. and German government bonds. Major U.S. and European stock indexes rose more than 1 percent, as did a measure of world stock markets..

The ECB left its main interest rate at 0.25 percent Thursday but the central bank's president, Mario Draghi, surprised markets by not signaling a near-term rate cut in remarks to reporters despite deflation worries in the 18-country euro zone.

Draghi's remarks sent the euro, which had lost ground to the dollar immediately after the decision, to a one-week high of $1.3619 and pushed up German bund yields. The euro was last up 0.4 percent at $1.3591.

"While he reiterated that risks for the economy remain to the downside and that inflation pressures are likely to remain subdued, he has not taken any meaningful step closer to easing monetary policy," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange.

Strong corporate earnings reports boosted European stocks .FTEU3 by 1.5 percent, while on Wall Street, the Dow Jones industrial and Standard & Poor's 500 indexes had their best day of the year, thanks in part to data showing fewer Americans than expected filed initial claims for jobless benefits.

U.S. crude oil settled up 46 cents at $97.84 a barrel. Brent crude settled up 94 cents at $107.19.

RELATIVE CALM

U.S. jobless claims "are still higher than where they were six weeks ago but are still consistent with a decent job market," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis. "The underlying trend is still positive."

National U.S. employment data due on Friday is expected to show the economy added 185,000 new jobs last month. Smaller-than-expected job gains in December have raised concern about the strength of the U.S. recovery, which sped up in late 2013.

The Dow Jones industrial average .DJI added 188.23 points, or 1.22 percent, to close at 15,628.46. The Standard & Poor's 500 Index .SPX was up 21.78 points, or 1.24 percent, at 1,773.42. The Nasdaq Composite Index .IXIC was up 45.57 points, or 1.14 percent, at 4,057.12.

The MSCI world stock index .MIWD00000PUS rose 1.3 percent, while the yield on the benchmark 10-year U.S. Treasury note rose to 2.70 percent as investors took on more risk. The yield hit a three-month low of 2.57 percent on Monday.

Relative calm in the capital-hungry emerging markets of Turkey, South Africa and India also lifted stocks, after a rout in recent weeks that had driven safe-haven bids to U.S. Treasuries and the yen.

Emerging market stocks .MSCIEF were up 1.4 percent after hitting five-month lows earlier this week, while the Turkish lira and South African rand held above recent troughs.

Emerging markets have been inflated in recent years by huge amounts of cheap cash created by the U.S. Federal Reserve. With the Fed now scaling back the program, that flow is reversing, putting pressure on emerging currencies and asset markets.

"You're going to continue to see a battle between the EM flight-to-quality concerns and the fact that the Fed, which has been the biggest buyer of Treasuries and mortgages in the world, are slowly but surely reducing what they are buying," said Jason Rogan, managing director in Treasuries trading at Guggenheim Partners.

Emerging market turmoil in recent weeks, along with softer U.S. economic data, have helped shave some about 4 percent from the S&P this year. The index rose nearly 30 percent in 2013.

"If people expect returns like we've seen over the last few years, they might be disappointed," said Michael Cuggino, president of Pacific Heights Asset Management. "But I expect people to slowly migrate back toward equities."

(Additional reporting by Atul Prakash and Marius Zaharia in London and Richard Leong and Karen Brettell in New York; Editing by Sophie Hares, Dan Grebler and Chris Reese)