NEW YORK (Reuters) - World stocks and the euro rallied on Thursday after news that Europe will create a fund to make cheap loans to Greece and reports that Washington is near a deal to shrink its budget and raise the debt ceiling.
European officials at an emergency summit in Brussels agreed to a second round of aid to Greece worth 109 billion euros, while the European Financial Stability Facility, the euro zone’s bailout fund, will provide loans to Greece at a lower interest rate and for longer maturities.
In the United States, two major newspapers reported the White House and top Republican lawmakers are close to striking a debt-reduction deal. This would remove the major political hurdle to raise the statutory $14.3 trillion debt ceiling so the United States can avoid a default in early August and the loss of its top-notch credit rating.
The White House denied the reports of a debt deal.
Perception of progress to resolve the messy debt situations on both sides on the Atlantic reduced fears they would drag down the global economy and led traders to cut holdings of gold and U.S. and German government bonds.
“The market has gone from very pessimistic to hopeful,” said Mark Pawlak, market strategist at Keefe Bruyette & Woods in New York. “Taking it on face value, these developments are positive for risk assets.”
The Dow Jones industrial average .DJI ended 152.50 points, or 1.21 percent, higher at 12,724.41. The Standard & Poor's 500 Index .SPX gained 17.96 points, or 1.35 percent, to 1,343.80. The Nasdaq Composite Index .IXIC was up 20.20 points, or 0.72 percent, at 2,834.43.
European stocks rose 1.1 percent .FTEU3 to a 1-1/2-week high, while emerging stocks .MSCIEF rose 0.6 percent.
The MSCI world equity index .MIWO00000PUS jumped 1.5 percent on the day to its highest in almost two weeks.
In the currency market, the euro rose to a two-week high. It gained 1.2 percent to $1.4387. <FRX/>
While stocks and the euro rose, gold and U.S. and German government bond prices fell.
The U.S. 30-year Treasury bond fell more than a point in price to yield 4.32 percent, while the benchmark 10-year note declined 24/32 to yield 3.02 percent. German Bund futures fell 0.9 percent at 127.00.
Spot gold fell to $1,590.14 an ounce on the EU measures to combat the region’s debt crisis. It was 1.2 percent below the record $1,609.51 set on Tuesday. <GOL/>
In other commodities, U.S. crude for August delivery in New York was up 83 cents at $99.23 a barrel, but Brent oil futures in London were down 21 cents at $117.93 after a bout of late selling.
Additional reporting by Matthew Robinson, Chuck Mikolajczak, Frank Tang and Wanfeng Zhou