GLOBAL MARKETS-Shares rise on U.S. economic data, euro hits year high

Fri Feb 28, 2014 11:31am EST

* U.S. GDP revised sharply downward, but other data stronger than expected

* S&P sets intra-day high, leading European shares to rebound

* Euro at year's high as inflation stabilizes, cooling ECB expectations

By Herbert Lash

NEW YORK, Feb 28 (Reuters) - Stocks on Wall Street zoomed to a record high on Friday, shrugging off a revised downward estimate to U.S. growth, while the euro hit its highest level this year after inflation in Europe stabilized, cooling expectations of looser monetary policy.

The benchmark Standard & Poor's 500 stock index surged to an intraday record after a round of mostly positive economic data. A discouraging read on U.S. gross domestic product, however, cast some doubt on whether higher equity valuations are justified.

GDP expanded at a 2.4 percent annual rate, down sharply from the 3.2 percent pace reported in January and the 4.1 percent logged in the third quarter, the Commerce Department said.

But the pace of business activity in the U.S. Midwest rose slightly in February, beating expectations and snapping a three-month run of slower growth, the business barometer from the Institute for Supply Management-Chicago showed.

Contracts to buy previously owned U.S. homes edged up in January after a weather-related hit at the end of 2013, and U.S. consumer sentiment rose marginally in February even as concerns about extreme weather persisted, a survey showed.

"The million-dollar question is how much of the slowdown is because of the weather, and how much is because of the economy getting weaker?" said Bill Stone, chief investment strategist at PNC Wealth Management in Philadelphia, with $125 billion in assets under management.

"The market continues to believe that weather is behind most of it, and we generally agree with that, but we will need to see a pick-up" in growth, he added.

MSCI's all-country world equity index rose 0.48 percent, while stocks in Europe rebounded on the relatively stronger U.S. data.

European shares initially dipped as euro zone inflation data came in at 0.8 percent, one-tenth of a percentage point above expectations, lessening the prospect of new monetary stimulus measures from the European Central Bank.

The pan-European FTSEurofirst 300 index subsequently edged up 0.04 percent to 1,345.99.

The Dow Jones industrial average rose 83.71 points, or 0.51 percent, to 16,356.36. The Standard & Poor's 500 Index was up 9.24 points, or 0.50 percent, at 1,863.53. The Nasdaq Composite Index was up 11.73 points, or 0.27 percent, at 4,330.66.

The euro gained as traders had expected a slower pace of inflation in the euro zone and subsequent lower interest rates.

Major currency markets have been broadly stable as investors retreated from emerging markets to safer bets like the euro, dollar, yen and Swiss franc.

"The euro certainly looks good, everything is in place for more gains. But I wouldn't race out and buy it at the moment," said Graham Davidson, FX trader with NAB in London.

The euro rose 0.73 percent to 1.3808, rising above $1.38 for the first time this year. The dollar pared losses against the Japanese yen, trading near break-even at 102.12.

Oil had dropped below $109 a barrel as the revised U.S. GDP estimates curbed the demand outlook. The severe U.S. winter had supported oil prices earlier this year, but concerns about demand from the United States and China, the world's No. 1 and No. 2 oil consumers, have recently weighed on prices.

But crude prices rebounded on the stronger U.S. data.

Brent crude rose 7 cents to $109.03 a barrel. U.S. oil rose 18 cents to $102.58.

U.S. Treasury debt prices fell, reversing Thursday's gains, as stronger-than-expected economic data led to profit-taking and set the market on track for its biggest weekly loss in a month.

The 10-year U.S. Treasury note fell 12/32 in pricing, pushing its yield up to 2.6852 percent.

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