Euro extends rally on ECB comments, yields fall ahead of G7

NEW YORK (Reuters) - The euro climbed to a three-week peak on Thursday as expectations mounted that the European Central Bank will signal an early wind-down of economic stimulus, while oil prices jumped on concern about a drop in exports from Venezuela.

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., June 4, 2018. REUTERS/Lucas Jackson

U.S. Treasury yields fell as safe-haven demand rose on tensions between the United States and its major trade partners ahead of the Group of Seven summit.

The divide has been widening between U.S. President Donald Trump and the group’s remaining six members after Trump imposed tariffs on steel and aluminum imports from Canada, Mexico and the European Union last week. The summit takes place on Friday and Saturday in Charlevoix, Quebec.

Worries about global trade discussions also weighed on stocks, with the S&P 500 and Nasdaq ending lower on the day.

“I’m inclined to think we’ll reach some agreements and move forward... but certainly there’s a lot of posturing and positioning, and it can be a little nerve-racking for investors who are wondering which companies and which countries might be affected and how,” said John Carey, portfolio manager at Amundi Pioneer Asset Management in Boston.

The ECB, at its policy meeting next week, will debate whether to end bond purchases later this year, its chief economist, Peter Praet, a close ally of ECB President Mario Draghi, said on Wednesday. Other ECB officials echoed Praet’s sentiment.

The comments drove the euro as high as $1.1840 EUR=, the highest level since May 17. It was last up 0.3 percent at $1.1812.

The European single currency has risen for four straight sessions. Since hitting a 10-month low last week, the euro has gained nearly 3 percent against the dollar and is on track to post its largest weekly gain in four months.

The dollar index .DXY, which tracks the greenback against a basket of major currencies, fell 0.23 percent.

“Any signal next week that the bank plans to go ahead with winding down its asset purchases in the fall could add to the euro’s broadly improved tone,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Oil prices received a boost from worries over a steep drop in exports from crisis-plagued Venezuela, which faces the threat of U.S. sanctions.

U.S. crude CLcv1 rose $1.22 to settle at $65.95 a barrel, while Brent LCOcv1 gained $1.96 to settle at $77.32.

The higher prices lifted energy shares on Wall Street, with the S&P 500 energy index .SPNY gaining 1.6 percent, making it the biggest percentage gainer among sectors.

A 4.4 percent jump in McDonald's shares MCD.N following news of potential layoffs boosted the Dow.

The Dow Jones Industrial Average .DJI rose 95.02 points, or 0.38 percent, to 25,241.41, the S&P 500 .SPX lost 1.98 points, or 0.07 percent, to 2,770.37 and the Nasdaq Composite .IXIC dropped 54.17 points, or 0.7 percent, to 7,635.07.

The pan-European FTSEurofirst 300 index .FTEU3 lost 0.19 percent and MSCI's gauge of stocks across the globe .MIWD00000PUS gained 0.03 percent.

Emerging market stocks lost 0.04 percent.

In the bond market, benchmark 10-year notes US10YT=RR last rose 13/32 in price to yield 2.9278 percent, from 2.975 percent late on Wednesday.

Copper hit a 4-1/2-year high on concerns over the potential that wage negotiations at the world’s biggest copper mine could disrupt supply.

Three-month copper on the London Metal Exchange CMCU3 rallied 1.7 percent to hit $7,348 a ton, its highest since January 2014. It ended the day at $7,332 a ton, up 1.6 percent.

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Additional reporting by Gertrude Chavez-Dreyfuss and Richard Leong in New York, Sruthi Shankar in Bengaluru and Helen Reid and Amanda Cooper in London; Editing by Leslie Adler and Cynthia Osterman