NEW YORK (Reuters) - World stocks rose more than 2 percent, recovering a bit from recent weakness, and the euro rallied on Wednesday on hopes that major central banks might act to bolster a slowing global economy.
Brent crude jumped above $100 a barrel, while gold hit a one-month high, leading a broad rally in the commodities sector. Silver soared 4 percent for its largest gain in three months and copper gained 3 percent.
A Federal Reserve official sounded more inclined to consider further help for the U.S. economy, while the European Central Bank left rates unchanged and its president, Mario Draghi, suggested near-term action was unlikely. But some investors interpreted his comment that risks to the economy had grown as a sign of possible future action by the ECB.
“Since we’re likely to see more economic weakness in the months ahead, it’s reasonable for the markets to assume the chance of an ECB rate cut has gone up,” said Robert Tipp, chief investment strategist for Prudential Fixed Income, with $330 billion in assets under management.
“Risk markets find that reassuring because there haven’t been that many accommodative signals coming out of the ECB in recent weeks.”
The chatter was enough to spur buying in world stocks, which have been hit hard of late and lost more than 11 percent between April 27 and Tuesday as the euro zone’s debt crisis appeared to worsen. The sharp slide in stocks was seen as overdone by some.
The MSCI World Equity Index .MIWD00000PUS jumped 2.3 percent for its biggest daily gain since December. The MSCI Emerging Equity Index .MSCIEF gained 2 percent, rebounding from a six-month low hit on Monday.
Wall Street shares closed sharply higher, with the S&P staging a major reversal above its 200-day moving average.
The Dow Jones industrial average .DJI ended up 286.84 points, or 2.37 percent, at 12,414.79. The Standard & Poor's 500 Index .SPX was up 29.63 points, or 2.30 percent, at 1,315.13. The Nasdaq Composite Index .IXIC was up 66.61 points, or 2.40 percent, at 2,844.72.
“The evidence was there that the market was at least getting close to the point of seller exhaustion. Once that happens, the pressure to cover short positions increases,” said Chris Burba, a short-term market technician at Standard & Poor’s in New York.
The European Central Bank resisted pressure to provide immediate support for the euro zone’s ailing economy by holding interest rates steady at 1 percent. But in a later statement, Draghi noted “increased downside risks to the economic outlook” and saw annual inflation falling below 2 percent in early 2013. The comments supported hopes for more accommodation down the road.
A similar tone was struck by Atlanta Fed President Dennis Lockhart, who said the U.S. central bank may need to consider additional monetary easing if a wobbly U.S. economy falters or Europe’s troubles generate a broader financial shock.
Fed Chairman Ben Bernanke testifies before the U.S. congressional Joint Economic Committee on Thursday and could provide hints on the possibility of further monetary easing. The Group of 20 economies is scheduled to meet later this month.
“We could well see easing taking place throughout many of the G10 countries,” said Ian Stannard, an executive director at Morgan Stanley. “We believe that quantitative easing from the Fed is also very much back on the table.”
Markets were also supported by signs of urgent moves by Germany and the European Union to find ways to rescue Spain’s troubled banks.
Spain, the euro zone’s fourth-biggest economy, said on Tuesday it was effectively losing access to credit markets due to prohibitive borrowing costs.
Prices of U.S. Treasuries fell for the third day in a row after the benchmark 10-year yield hit an historic low last week. The 10-year U.S. Treasury note was down 26/32, the yield at 1.6609 percent.
The euro gained 0.9 percent to $1.2570, well off the near two-year low of $1.2286 set on Friday, as a broad rally in risky assets sent investors scrambling to cover bets against the currency.
“Lack of negative news overnight and from Draghi prompted a short squeeze,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.
The dollar rose 0.6 percent to 79.24 yen.
Brent crude surged to an intra-day high of $101.39 a barrel before easing to settle at $100.64, up $1.80. U.S. crude climbed 73 cents to end at $85.02.
Gold rose more than 1 percent before turning flat after the Fed said in its Beige Book summary that U.S. economic growth picked up over the two prior months, decreasing the bullion’s appeal as an investment hedge against economic uncertainty.
German 10-year bond yields rose 12 basis points to 1.32 percent, bouncing off a record low of 1.127 percent hit last Friday as nervousness over Spain’s finances prompted a surge in demand for safer assets.
Bund yields could rise further in coming sessions, especially if Spain passes a key test for investor demand for its debt at an auction on Thursday, strategists said.
Spanish 10-year bond yields were two basis points lower on the day at 6.29 percent, extending this week’s fall to around 25 basis points.