August 29, 2014 / 7:15 PM / 3 years ago

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

* Euro off lows as inflation cools bets for ECB cut next
    * Wall Street gains on mostly strong economic reports
    * German Bund yields tick higher but still near record lows

 (Adds oil settlement prices)
    By Herbert Lash
    NEW YORK, Aug 29 (Reuters) - Global equity markets rose on a
fresh round of strong U.S. economic reports on Friday, while
German bond yields edged up from record lows as expectations
that the European Central Bank would ease monetary policy next
week faded.
    Although euro-zone inflation slid to a five-year low, the
rate of decline was not enough to force the ECB to enact
monetary stimulus, analysts said. The data initially put a
damper on European shares until new 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.
    Charlie Smith, chief investment officer at Pittsburgh-based
Fort Pitt Capital Group, said he sees room to run in the
five-year bull market because the outlook for earnings and
economic data continue to improve, even though some investors
are convinced the market is overvalued.
    "You put together all this sort of steadily improving
positives in terms of the economy with the fact that people hate
the fact that the market won't correct, and it just keeps going
(up) and it appears like it's going to," Smith said.
    European stocks closed higher, while Wall Street was mostly
higher. MSCI's gauge of worldwide stock performance
 also rebounded, gaining 0.07 percent.
    The Dow Jones industrial average fell 11.43 points,
or 0.07 percent, to 17,068.14. The S&P 500 rose 3.16
points, or 0.16 percent, to 1,999.9 and the Nasdaq Composite
 added 14.70 points, or 0.32 percent, to 4,572.39.
    The FTSEurofirst 300 index of top European shares
closed up 0.33 percent at 1,373.82 points.
    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 rose
1/32 in price, pushing its yield down to 2.3290 percent.  
    The euro retreated, falling 0.33 percent to $1.3138, 
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
    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, Leslie Adler and Chris Reese)
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