NEW YORK (Reuters) - World stocks bounced back from multiyear lows on Wednesday, buoyed by signs of economic recovery in China and plans by its government to increase fiscal spending, news that helped lift oil and metals prices.
U.S. crude oil futures jumped more than 7 percent, extending gains to top $45 a barrel after inventory of crude in the United States declined unexpectedly and demand for gasoline rose.
Euro zone and U.S. government debt prices mostly fell as the rebound in equities undermined investors’ appetite for less risky fixed-income assets.
But the cost of borrowing dollars over three months nudged higher as ongoing worries over the financial sector, where counterparty risks have risen, kept banks wary about lending to each other.
A key gauge of Chinese manufacturing rose in February for the third straight month, hitting a five-month high and lifting investor optimism on hopes the data signaled that China, a major driver of global growth, may be on the brink of economic recovery. China also said it will boost spending on infrastructure and manufacturing under a second stimulus package.
The Shanghai Composite Index .SSEC, the main Chinese stock index, surged 6.1 percent in its biggest gain since November.
European shares rallied, breaking three straight sessions of losses, and U.S. stocks snapped a five-day sell-off. Higher prices for oil and other commodities — driven by China hopes — spurred energy and natural resource stocks.
“The market is encouraged by the news from China,” said Joe Arsenio, president of Arsenio Capital Management in Larkspur, California. “They believe (China) will gain traction in the second quarter.”
Shares of Caterpillar Inc (CAT.N), a big exporter to China and a major seller of equipment to the mining industry, rose 13.7 percent.
After 1 p.m., the Dow Jones industrial average .DJI rose 117.08 points, or 1.74 percent, at 6,843.10. The Standard & Poor's 500 Index .SPX gained 12.03 points, or 1.73 percent, at 708.36. The Nasdaq Composite Index .IXIC added 27.05 points, or 2.05 percent, at 1,348.06.
The FTSEurofirst 300 .FTEU3 index of top European shares closed at 696.23 points, up 4 percent.
Miners Rio Tinto (RIO.L) gained 14 percent and BHP Billiton BLT.L rose 12.9 percent on the back of higher copper prices, while steelmaker ArcelorMittal ISPA.AS rose 12.4 percent.
Copper jumped over 5 percent to its highest level in more than three months as investors pinned hopes on demand from China, the world’s largest consumer of the red metal.
The rise in equity markets around the world overshadowed more dire economic data suggesting that the U.S. and euro zone recessions have yet to hit bottom.
U.S. private companies hemorrhaged 697,000 jobs in February and the service sector slump deepened [ID:nN04538530].
The dollar vaulted to a four-month high against the yen as another slide in the U.S. private-employer payrolls and persistent worries about the world economy boosted safe-haven flows into the U.S. currency.
But the dollar cut earlier gains against the euro and sterling as stocks rallied and investors took profits ahead of Friday’s government payrolls report and interest rate decisions due Thursday from the European Central Bank and Bank of England.
The dollar rose as much as 99.48 yen, closing in on 100 for the first time since early November, as investors worried about Japan’s struggling economy and the U.S. jobless data.
The dollar rose 0.97 percent at 99.25 against the yen, but it fell against a basket of major currencies, with the U.S. Dollar Index .DXY down 0.49 percent at 88.751.
The euro rose 0.40 percent at $1.2615.
U.S. government debt fell. The benchmark 10-year U.S. Treasury note fell 36/32 in price to yield 3.02 percent. The 2-year U.S. Treasury note slipped 6/32 in price to yield 0.98 percent.
U.S. light sweet crude oil rose $2.73 to $44.38 per barrel.
Gold fell in Europe, flirting with three-week lows, as the bounce in equities lured investors back into riskier assets.
Spot gold prices fell $8.40 to $906.85 an ounce.
Asian stocks rallied on Wednesday on hopes Beijing will step up efforts to support the Chinese economy,
Japan's Nikkei share average .N225 rose 0.9 percent, after sliding to a 25-year low on Tuesday. The MSCI index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.3 percent.
Reporting by Edward Krudy, John Parry, Steven C. Johnson in New York and Emelia Sithole-Matarise, Ian Chua, Christopher Johnson, Jan Harvey and Rebekah Curtis in London and Peter Starck in Frankfurt; writing by Herbert Lash; Editing by Leslie Adler