Dollar rises to third weekly gain; stocks jump

NEW YORK (Reuters) - Global equity markets rose on Friday as investors took in stride the possibility the Federal Reserve may hike interest rates in June, a view that helped U.S. bond yields to rise and lifted the dollar to a third straight week of gains.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 9, 2016. REUTERS/Brendan McDermid

U.S. home resales rose more than expected in April, suggesting the American economy has continued to gather pace during the second quarter. The data added to a growing perception that a rate hike next month or in July would not derail U.S. growth.

Wall Street rose, following gains in Europe, with the S&P financial sector index .SPSY rising 0.61 percent as recent comments from Fed officials suggested the possibility of a rate increase as early as June.

Information technology .SPLRCT was the biggest gainer among the S&P sectors, rising 1.18 percent, on a higher-than-expected profit forecast from chip company Applied Materials AMAT.O, whose shares closed up 13.8 percent.

New York Fed President William Dudley said on Thursday the U.S. economy was strong enough to warrant a rate hike.

MSCI's all-country world stock index .MIWD00000PUS rose 0.77 percent, and the pan-European FTSEurofirst 300 index .FTEU3 of leading regional stocks closed up 1.26 percent to 1,326.45 points.

On Wall Street, the Dow Jones industrial average .DJI closed up 65.54 points, or 0.38 percent, to 17,500.94. The S&P 500 .SPX gained 12.28 points, or 0.6 percent, to 2,052.32 and the Nasdaq Composite .IXIC added 57.03 points, or 1.21 percent, to 4,769.56.

For the week, the Dow fell 0.2 percent, the S&P 500 gained 0.3 percent and Nasdaq climbed 1.1 percent.

The dollar traded close to two-month highs after it pushed past $1.12 per euro for the first time since March. Sterling gained 1.7 percent for the week as fears abated that Britain would vote to leave the European Union next month, a move referred to as "Brexit." EURGBP=GBP=

Slideshow ( 2 images )

“The question for traders now is whether this Fed rate hike issue is a ‘risk-on’ or a ‘risk-off’ situation,” said Saxo Bank FX strategist John Hardy. “Our interpretation is that they want to do a June move, especially now Brexit chances seem to have dropped right off.”

Not everyone believes a rate hike is imminent.

The probability of a June rate hike has jumped to 30 percent from around 4 percent at the start of the week, according to CME Group’s FedWatch site. Futures markets are predicting two rate hikes this year as opposed to just one as recently as last week.

“There is not enough data suggesting a rate hike is warranted,” said Rahul Shah, chief executive of Ideal Asset Management, adding that equity gains amounted to a relief rally.

The dollar index .DXY was slightly higher at 95.367 after reaching 95.502 overnight, a level last seen on March 29.

Against the yen, the dollar gained 0.16 percent to set another three-week high, at 110.58 yen JPY=. The euro EUR= rose 0.12 percent against the dollar at $1.1216.

Japan and the United States remain at loggerheads over exchange-rate policy with Washington dismissing Tokyo’s concerns that recent yen rises are excessive. Currency market stability is among topics financial leaders of the Group of Seven advanced economies are discussing at a two-day gathering that kicked off Friday.

A stronger dollar spurred investors to cash in on a second week of oil price gains, with the focus remaining on the market’s rebalancing as the global glut faced unplanned supply outages.

Global benchmark Brent crude prices LCOc1 closed down 9 cents to settle at $48.72 a barrel.

U.S. West Texas Intermediate (WTI) crude futures CLc1 fell 41 cents to settle at $47.75 a barrel.

U.S. Treasury yields, which move in the opposite directionof prices, rose to their highest level in about two months.

Benchmark U.S. 10-year notes US10YT=RR fell 1/32 in price, pushing their yield up to 1.8454 percent. Earlier yields hit 1.868 percent.

Gold edged lower for the third straight session and notched its biggest weekly slide in nearly two months on growing expectations of a Fed rate hike.

U.S. gold futures GCv1 for June delivery settled down $1.90 at $1,252.90.

Editing by Nick Zieminski and Leslie Adler