* U.S. optimism over fiscal deal boosts markets
* European shares climb, U.S. stocks gain
* Euro gains vs dollar; oil prices edge up
NEW YORK, Nov 29 A benchmark world stock index
rallied to a three-week high and the euro and commodities gained
on Thursday amid optimism that U.S. political leaders were
progressing toward a deal to avoid a fiscal crisis that could
derail growth in the world's biggest economy.
The "fiscal cliff" - automatic spending cuts and tax
increases that come into effect in 2013 unless Congress agrees
on an alternative - is the biggest risk facing global markets in
the final weeks of the year, following an agreement earlier this
week on fresh aid for Greece.
U.S. benchmark indexes followed European markets higher,
with an added boost after data on Thursday showed weekly initial
jobless claims fell for a second consecutive week, and that the
economy grew faster than initially thought in the third quarter.
The reports suggested that the world's largest economy was
on a stable path to recovery. A separate report showed the
National Association of Realtors monthly index of pending sales
of existing U.S. homes rose 5.2 percent in
"There will be a deal before December 31 to avert the
economy facing disaster," said Peter Cardillo, chief market
economist at Rockwell Global Capital in New York.
"We're back on track for a year-end rally to continue," he
The growing optimism spread across world share markets,
sending the MSCI global equities index up 0.8
percent to its highest since Nov. 7.
The Dow Jones industrial average was up 36.64 points,
or 0.28 percent, at 13,021.75. The Standard & Poor's 500 Index
was up 5.81 points, or 0.41 percent, at 1,415.74. The
Nasdaq Composite Index was up 18.44 points, or 0.62
percent, at 3,010.22.
The FTSE Eurofirst 300 index rose 1 percent.
Good demand at a bond sale by Italy, where yields fell to their
lowest level in two years, added to signs the crisis in the euro
area had begun to ease and helped further bolster optimism.
However, traders said until a deal was done in Washington,
share markets were likely to remain nervous.
"One minute the portents for a deal on the fiscal cliff are
negative, the next minute they are positive. This is likely to
be the pattern all the way up to the deadline on Jan. 1," said
Mike Mason, a senior trader at Sucden Financial Private Clients.
"Equities are sure to remain volatile and trading subdued
until there is any concrete outcome to these negotiations,"
RISK FLOWS CHANGE
As investors returned to riskier assets, the other side of
the coin was a retreat from safe-haven German government bonds,
pushing benchmark 10-year debt yields up to 1.371 percent
But the better tone allowed Italy to auction successfully
six billion euros ($7.75 billion) of new 5- and 10- year debt,
which was expected to complete its funding needs for the year.
The yield on the 10-year bond was around the
lowest since November 2010.
Spain also took the opportunity to announce it would sell
some more bonds at an auction on Dec. 5, although it has
completed raising all the money it needs for this year.
Italian and Spanish debt have benefited in recent months
from the European Central Bank's pledge to buy sovereign debt if
countries ask for aid first.
Even though that has not happened yet, the prospect of a
central bank backstop has made investors reluctant to sell and
has pushed them back into those markets.
A fall in Italian and Spanish yields helped lift the euro
against the dollar by 0.2 percent to $1.2974, with the
hopes for a U.S. fiscal deal adding to support for the common
Commodity markets also got some support from the U.S. fiscal
deal hopes, while mounting tension in the Middle East bolstered
oil prices on supply concerns. Crude oil futures rose
$2.02 to $88.53 a barrel, and Brent climbed $1.66 to
$111.17 a barrel.
Spot gold was up 0.4 percent at $1,725.75 an ounce
although this followed a 1.3 percent tumble on Wednesday, its
biggest daily decline in nearly four weeks.
"Gold is being pulled higher on this prevailing optimism
over the fiscal cliff," said Ross Norman, chief executive of
bullion dealer Sharps Pixley.