Global shares hit three-month high on ECB hopes; euro, oil gain

NEW YORK (Reuters) - World stocks rose to a new three-month high and the euro gained on Tuesday as investors drew encouragement from signs that Europe is edging toward resolving its debt crisis even as the economic impact in the region worsens.

Global markets have enjoyed a strong run this week after the European Central Bank indicated it may start buying government bonds again to ease the pressure on Spain and Italy, albeit under strict conditions that have yet to be fully worked out.

Investors are also watching to see if the Federal Reserve will take any fresh measures to bolster the U.S. economy. Boston Federal Reserve Bank President Eric Rosengren on Tuesday repeated his call for the central bank to expand monetary policy, saying the economy is only treading water and inflation is not a problem.

Many analysts expect the Fed could launch a third round of bond-buying, known as quantitative easing, when it next meets in mid-September. But Dallas Federal Reserve President Richard Fisher told Reuters that taking new steps so close to November's presidential election would be a mistake.

U.S. stocks were higher in the late morning with the S&P 500 hitting the psychologically important 1,400 level for the first time since early May.

Oil prices extended gains on expectations of further economic stimulus, as well as supply worries with falling North Sea output expected in September, Middle East tensions and the Gulf of Mexico hurricane season. Brent crude futures pushed above $111 a barrel.

Highlighting the importance of quick action, data showed economic powerhouse Germany took a bigger hit than expected in June with industrial orders falling 1.7 percent. Contracts from the euro zone fell by 4.9 percent.

The softening data "is going to force the ECB to take action and is probably going to mean more Fed stimulus," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

The cautious hopes that Europe's three-year crisis was edging toward a solution lifted the MSCI world equity index <.miwd00000pus> 0.8 percent, its highest level since early May.

The Dow Jones industrial average <.dji> gained 84.88 points, or 0.65 percent, to 13,202.39. The Standard & Poor's 500 Index <.spx> rose 11.25 points, or 0.81 percent, to 1,405.48. The Nasdaq Composite Index <.ixic> climbed 32.18 points, or 1.08 percent, to 3,022.09.

Equities markets have enjoyed renewed demand from investors over the past three months as high-rated government bond returns have fallen sharply due to demand from investors seeking safety from the troubles in Europe, increasing the relative attractiveness of blue-chip stocks.

European shares had a choppier day after the disappointing German data, while Italy's recession extended into a fourth consecutive quarter.

Oil stocks got a boost from rising crude prices, helping the FTSEurofirst 300 index <.fteu3> of top European companies provisionally finish up 0.7 percent.

SKEPTICS REMAIN

A sharp drop in shares of Standard Chartered Plc after New York's bank regulator threatened to tear up its state banking license weighed on European bank stocks.

"We're more enthusiastic about oil stocks than banks. Higher oil prices will be beneficial and equity markets are continuing to be supported by the fact that central banks appear ready to ride to the rescue," said Cheviot Asset Management partner David Miller.

Standard Chartered plummeted more than 16 percent after the New York State Department of Financial Services said the British-based lender hid $250 billion in transactions tied to Iran.

The euro was still basking in the glow of ECB President Mario Draghi's promise that the central bank was "ready to do whatever it takes to preserve the euro", and the expectations it would intervene to help Spain and Italy.

The euro climbed 0.2 percent to $1.2420. It hit a one-month high of $1.2443 on Monday before paring gains.

However, investors remain cautious about the next steps, as ECB action can be triggered only when a country decides its finances are in such bad shape that it needs a bailout, which could arouse new fears about the whole region.

"Skeptics remain and the ECB will have to replace rhetoric with action sooner than later for this upward move to gain any momentum,' said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey.

"There are still people predicting the $1.2000 level in the euro by year end."

The ECB could resume bond buying - possibly as soon as September - which will target shorter dated sovereign debt and aim to complement the combined firepower of the region's two bailout funds while keeping the pressure on governments to reform.

But the euro zone's new permanent bailout fund has yet to be formally approved by paymaster Germany and rules governing any ECB bond buying still have to be agreed by internal committees at the central bank.

Brent crude for September delivery rose $2.09 to $111.64 a barrel, climbing above $110 a barrel for the first time since mid May. U.S. crude jumped $1.23 to $93.43.

(Additional reporting by Sudip Kar-Gupta in London and Gertrude Chavez-Dreyfuss and Rodrigo Campos in New York, editing by Dave Zimmerman)

Source: http://news.yahoo.com/global-shares-steady-sustained-policy-hopes-eyes-rba-003059627--finance.html

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