GLOBAL MARKETS-Stocks rise, bond yields steady as ECB seen on hold

Fri Aug 29, 2014 4:45pm EDT

* Euro off lows as inflation cools bets for ECB cut next
week
    * Wall Street gains on mostly strong economic reports
    * German Bund yields tick higher but still near record lows
    * S&P 500 and Euro STOXX 50 post biggest monthly gains since
Feb

 (Adds close of U.S. marekts, new comment)
    By Herbert Lash
    NEW YORK, Aug 29 (Reuters) - Global equity markets rose on
Friday, posting their best month since February on strong U.S.
data, while German bond yields edged up from record lows as
expectations that the European Central Bank would ease monetary
policy next week faded.
    The U.S. benchmark S&P 500 index set a new closing high,
ending the day above the 2,000 milestone for the third time. The
S&P's gain for August was its best monthly performance since
February.
    Although euro-zone inflation slid to a five-year low, the
decline was unlikely to lead the ECB into new stimulus anytime
soon, analysts said. The data initially put a damper on European
shares until fresh signs of an improving U.S. economy led a
rebound.
    U.S. consumer spending fell in July for the first time in
six months, but a rise in consumer sentiment in August to a
seven-year high suggested the retrenchment was likely temporary.
 
    Other data showed a sharp acceleration in factory activity
in the Midwest, underscoring the U.S. economy's relatively
strong fundamentals.
    "We reached and closed above the 2,000 milestone this week
and that gets the mental obstacle out of the way," said Andre
Bakhos, managing director at Janlyn Capital LLC in
Bernardsville, New Jersey. "Economic numbers have been positive
for the most part, people are drawing comfort from these
numbers, using them as a justification for optimism."
    European stocks and Wall Street closed higher, with MSCI's
gauge of worldwide stock performance rising 1.9
percent in August, its best monthly performance since February.
    Wall Street was better. For the month, the Dow Jones
industrial average rose 3.2 percent, the S&P 500 
gained 3.8 percent, and the Nasdaq Composite climbed 4.8
percent.
    On Friday, the Dow rose 18.88 points, or 0.11 percent, to
17,098.45. The S&P 500 added 6.63 points, or 0.33 percent, to
2,003.37, and the Nasdaq gained 22.58 points, or 0.5 percent, to
4,580.27.
    The FTSEurofirst 300 index of top European shares
closed up 0.33 percent at 1,373.82 points. The blue-chip Euro
STOXX 50 rose 1.8 percent for August, its biggest
monthly gain since February.
    European bond yields fell sharply across the euro zone at
the start of the week after ECB President Mario Draghi
highlighted a significant drop in inflation expectations in a
speech at a meeting of central bankers in Jackson Hole, Wyoming.
    Draghi's comments raised expectations that the ECB would
soon deploy a large-scale purchase of assets, known as
quantitative easing, or QE. That view helped weaken the euro and
boosted enthusiasm for stocks on both sides of the Atlantic.
    "What people realize is that for the ECB to engage in
public-sector QE ... the ECB has to see the whites of the eyes
of deflation," said Wouter Sturkenboom, investment strategist at
Russell Investments.
    German 10-year Bund yields, the benchmark for
euro zone borrowing costs, rose half a basis point to 0.891
percent, having hit a record low of 0.86 percent on Thursday. 
    The benchmark 10-year U.S. Treasury notes 
seesawed, falling 2/32 in price to push its yield up 2.3431
percent.  
    The euro retreated, falling 0.33 percent to $1.3139, 
having risen as high as $1.3195 soon after the report on euro
zone inflation.
    Against the yen, the dollar was up 0.35 percent at
104.06. 
    U.S. crude oil rose for a fourth straight day as the Midwest
manufacturing data pointed to strong demand.
    Brent for October delivery settled up 73 cents to
$103.19 a barrel. U.S. crude gained $1.41 to settle at
$95.96 a barrel.
    

 (Additional reporting by Marc Jones in London; Editing by
Jonathan Oatis, Chris Reese and Leslie Adler)