GLOBAL MARKETS-Bank stocks up, bond yields dip after Portuguese bank rescue

Mon Aug 4, 2014 3:02pm EDT

(Adds oil settlement prices)
    By Chuck Mikolajczak
    NEW YORK, Aug 4 (Reuters) - Bond prices rallied and European
bank stocks rose on Monday after Portugal devised a plan to
prevent the collapse of one of its biggest lenders. 
    U.S. stocks were also higher heading in the latter stages of
trading, with the S&P 500 coming off its worst week since
2012, as concerns over higher U.S. interest rates eased
following Friday's U.S. employment report.
    "The S&P has had a huge run, and it's earned the right to
sit for a bit. The key is to make sure selling remains somewhat
contained," said Adam Sarhan, chief executive of Sarhan Capital
in New York. "We're in a very strong bull market right now."
    Portugal on Sunday announced a nearly 5 billion-euro ($6.6
billion) rescue of the country's largest listed bank, Banco
Espirito Santo, preventing it from collapsing and
potentially destabilizing the regional banking sector.
 
    Portugal's 10-year yield fell to 3.651
percent, down 7 basis points, as investors bought the bonds on
relief after the package was announced. Other European bond
markets also rallied, with yields on Spanish and Italian bonds
moving lower . 
    The FTSEurofirst 300 index of leading shares closed
down 0.19 percent, giving up early gains. Pan-European banking
stocks finished up 0.3 percent, however. 
    The MSCI All-World Index advanced 0.3
percent.
    U.S. financial shares rose 0.7 percent, buoyed by a
3.1 percent gain in Berkshire Hathaway  after
the company helmed by Warren Buffett said on Friday that
second-quarter profit soared 41 percent. 
    The Dow Jones industrial average was up 68.49 points,
or 0.42 percent, at 16,561.86. The Standard & Poor's 500 Index
 was up 13.13 points, or 0.68 percent, at 1,938.28. The
Nasdaq Composite Index was up 30.77 points, or 0.71
percent, at 4,383.41. 
    
    FED FEARS EASE
    The rate-sensitive U.S. two-year Treasury note yield was
little changed at 0.4723 percent and the 10-year
yield fell to 2.49 percent, declining in tandem with
European yields.
    Bond yields were also capped by Friday's U.S. jobs data for
July, which showed job growth lower than forecast, the
unemployment rate higher than expected and almost no growth in
average hourly earnings. 
    A Reuters poll on Friday after the jobs data showed that a
majority of top Wall Street bond firms do not see a rise in U.S.
interest rates before the second half of next year.
 
    "The real question becomes, will the Fed be able to
transition and exit from QE3 gracefully?" Sarhan said.
    Major currencies were little changed on Monday. The euro was
at $1.3420, off last week's eight-month low of $1.3365,
while the dollar stood at 102.47 yen, off Wednesday's
four-month peak of 103.08 yen.
    U.S. crude oil futures settled up 41 cents at $98.29 per
barrel, recovering from a six-month low of $97.09 on
Friday, and Brent crude settled up 57 cents at $105.41 a
barrel. Spot gold edged down 0.4 percent at $1,287.75 an ounce
.

 (Additional reporting by Akane Otani; Editing by Dan Grebler)
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