NEW YORK (Reuters) - Hopes for the implementation of government stimulus packages rekindled some global appetite for risk on Friday, encouraging investors to move out of safe-haven government bonds and gold, although Wall Street slipped on renewed banking sector fears.
Oil prices rallied more than 10 percent, sending energy stocks higher across the globe, but U.S. bank shares declined after Britain’s Lloyds Banking Group (LLOY.L) posted hefty losses for 2008.
“There is speculation that we are going to see a larger (U.S. government) package than we thought we were going to see, including subsidies,” said Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co in New York.
Wall Street was also pressured, however, by a bigger-than-expected fall in U.S. consumer confidence for February, which sank back to November levels, according to a Reuters/University of Michigan survey.
As a result, the main U.S. stock indexes seesawed for most of the day, eventually ending lower in the last session before a three-day holiday weekend.
The Dow Jones industrial average .DJI finished down 82.35 points, or 1.04 percent, at 7,850.41, while the Standard & Poor's 500 Index .SPX lost 8.35 points, or 1.0 percent, at 826.84. The Nasdaq Composite Index .IXIC declined 7.35 points, or 0.48 percent, at 1,534.36.
“The banks are still a concern, plus we have a long weekend coming up,” said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois. “There are people that may be deciding they want to be out of the market for a few days.
Hopes for a substantial government stimulus package supported sentiment in other markets, encouraging investors to venture out of the relative safety of U.S. government bonds, gold and the dollar.
The U.S. Senate was set to vote later on Friday on the Obama administration’s $787 billion economic package. The House of Representatives earlier approved the package.
A program to subsidize mortgages for U.S. homeowners is also on the works in Washington, and should be unveiled by President Barack Obama on Wednesday.
Prices of U.S. crude oil soared $3.53, or 10.39 percent higher, to settle at $37.51 per barrel.
U.S. benchmark 10-year Treasury notes traded 28/32 lower in price for a yield of 2.89 percent. Spot gold prices were at $937.80 an ounce, down 0.8 percent from the last trade $945.05 late in New York on Thursday.
In Europe, the FTSEurofirst 300 index .FTEU3 closed 0.61 percent higher at 796.50, even as Lloyds' shares plunged over 32 percent.
“The Lloyds statement has led to further devastation across the banking sector. Activity and volumes are very thin today. There is an air of quietness and it only takes one shock to send it down,” said Howard Wheeldon, strategist at BGC Partners.
Optimism about a U.S. mortgage subsidy program helped the dollar gain 0.17 percent against a basket of major currencies, according to the U.S. Dollar Index .DXY.
The greenback gained 1.19 percent against the yen, at 91.95, also supported by expectations that the Group of Seven finance ministers may single out the Japanese currency for excessive strength at this weekend’s meeting in Rome.
But the euro was near flat against the dollar, at $1.2863, after three consecutive sessions of losses, as investors squared positions ahead of the G7 meeting.
The European currency mostly shrugged off a report showing the euro zone economy had its deepest contraction on record in the fourth quarter of 2008, increasing the likelihood of interest rate cuts by the European Central Bank.
Emerging equity markets also benefited from an increased appetite for risk. The MSCI stock index for the asset class .MSCIEF jumped 2.1 percent while yield spreads between emerging-market bonds and U.S. Treasuries tightened 18 basis points to 660 basis points on the benchmark JPMorgan EMBI+ index.
Additional reporting by Chris Reese and Gertrude Chavez-Dreyfuss in New York, Joanne Frearson in London; editing by Gary Crosse