GLOBAL MARKETS-Stocks gain, bond yields dip after Portuguese bank rescue

Mon Aug 4, 2014 4:17pm EDT

(Adds close of U.S. markets)
    By Chuck Mikolajczak
    NEW YORK, Aug 4 (Reuters) - Bond prices rallied and European
bank stocks rose on Monday after Portugal forged a plan to
prevent the collapse of one of its biggest lenders. 
    U.S. stocks also notched their biggest gain since July 18,
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.
    "Probably the biggest thing of all is it looks like they
have come together with a plan on Banco Espirito Santo in
Portugal, that in the background was maybe one thing that was
spooking people quite a bit," said Peter Jankovskis, co-chief
investment officer at OakBrook Investments LLC in Lisle,
Illinois. 
    "That's where the biggest development has been, they have a
plan in place and they are moving forward on that, that is one
thing that had contributed to the downdraft."
    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 0.8 percent, buoyed by a
3.1 percent gain in Berkshire Hathaway  after it
said on Friday second-quarter profit soared 41 percent.
 
    The Dow Jones industrial average rose 75.91 points or
0.46 percent, to 16,569.28, the S&P 500 gained 13.84
points or 0.72 percent, to 1,938.99 and the Nasdaq Composite
 added 31.25 points or 0.72 percent, to 4,383.89.
    
    FED FEARS EASE
    The rate-sensitive U.S. two-year Treasury note yield inched
down 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?" said Adam Sarhan,
chief executive of Sarhan Capital in New York. 
    Major currencies were little changed. The euro was at
$1.3420, off last week's eight-month low of $1.3365,
while the dollar stood at 102.56 yen, off Wednesday's
four-month peak of 103.08.
    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.
Spot gold edged down 0.4 percent at $1,287.75 an ounce.

 (Additional reporting by Akane Otani; Editing by Dan Grebler
and James Dalgleish)