NEW YORK U.S. and European stocks rose and the euro bounced off lows against the dollar on Friday after sources said the European Central Bank is considering setting targets in the bond market in a bid to contain crippling borrowing costs in troubled euro zone economies.
Stocks had earlier come under pressure on worries about Greece and uncertainty over how Europe will address Spain's debt crisis. Speculation has grown in recent weeks that the ECB will soon start buying Spanish and Italian bonds.
The ECB is considering targeting a yield band, an option gaining favor among central bankers, central bank sources told Reuters. But the decision would not be made before the ECB's September 6 policy meeting and it wasn't clear how wide the band would be or how the ECB would decide when to intervene in the bond markets.
"Any time we get comments out of Europe that create a perception that they are working diligently to solve the debt issue, the euro starts to rally, (the) dollar goes lower and in return, our equity markets move higher," said Randy Frederick, managing director of active trading at Charles Schwab.
"I'm not sure if this will have lasting impact on the market."
Further boosting investor sentiment, U.S. Federal Reserve Chairman Ben Bernanke said the Fed has room to deliver additional monetary stimulus to boost the U.S. economy. Bernanke made the comment in a letter to a congressional oversight panel.
The Dow Jones industrial average .DJI ended up 100.51 points, or 0.77 percent, at 13,157.97. The Standard & Poor's 500 Index .SPX closed up 9.04 points, or 0.64 percent, at 1,411.12. The Nasdaq Composite Index .IXIC finished up 16.39 points, or 0.54 percent, at 3,069.79.
The FTSEurofirst-300 index of pan-European shares .FTSE rose 0.11 percent to end at 1,090.38 points. The MSCI global stock index .MIWD00000PUS slipped 0.1 percent to 324.34.
Mixed U.S. economic data added to uncertainty over whether the Fed would act soon to bolster the stalled economic recovery. Hopes for action had grown after minutes from the Fed's latest meeting showed policymakers might deliver another round of stimulus "fairly soon" unless the economy improves considerably.
New orders for long-lasting U.S. manufactured goods surged in July, but a gauge of planned business spending declined for a second straight month, pointing to slowing growth in manufacturing.
"The overall feeling is that the economy is still trending in the right direction," said Ravi Bharadwaj, a market analyst at Western Union Business Solutions in Washington. "For now, based on the string of reports we've had so far, there doesn't seem to be a need of further quantitative easing from the Fed."
Bernanke and other central bank leaders meet in Jackson Hole, Wyoming, next week for an annual get-together that could shed light on the outlook for monetary policies. Bernanke has used this event the previous two years to flag the Fed's intention on more easing. <FED/DIARY>
GREECE WORRIES RESURFACE
Sentiment remained fragile and worries about Greece supported safe-haven German government bonds, which rallied to their biggest weekly gains since early July.
Germany and France want Greece to stay in the euro zone, but Athens must meet its commitments, German Chancellor Angela Merkel said after meeting Greek Prime Minister Antonis Samaras.
The euro fell 0.4 percent to $1.2511, off a session low of $1.2481 on Reuters data. It briefly erased losses to trade little changed after the ECB report.
The euro zone's common currency fell to a session low against the dollar after Market News International reported that senior euro-zone officials said the German Finance Ministry is seriously considering a plan in which Greece would be obliged to ask for a temporary exit from the euro zone until it sorts out its public finances.
Against the yen, the dollar rose 0.3 percent to 78.69 yen.
The benchmark 10-year U.S. Treasury note erased gains to trade 2/32 lower in price, yielding 1.6814 percent.
Brent crude oil futures settled more than 1 percent lower after a trade journal report that the International Energy Agency may tap into strategic oil reserves as early as September, dropping its resistance to a U.S.-led plan.
In London, Brent October crude fell $1.42 to $113.59 a barrel. U.S. crude fell 12 cents to end at $96.15 a barrel.
Gold prices posted their biggest weekly gain since January, following a seven-session rally to 4 1/2-month highs on hopes of a new round of U.S. monetary stimulus. Spot gold last traded at $1,670 an ounce.
(Additional reporting by Angela Moon, Nick Olivari and Gertrude Chavez-Dreyfuss; Editing by Kenneth Barry)