Strong growth in the US economy and signs of a delay in expected Western military strikes on Syria lifted equities worldwide yesterday and pushed the dollar to a two-week peak.
Wall Street rose for a second day, boosted by a possible large deal between Vodafone and Verizon as investors took comfort that a potential Western military strike on Syria appeared to be slowed, for now.
Data showed the American economy grew more quickly than expected in the second quarter, and weekly claims for unemployment benefits fell, bolstering the case for the Federal Reserve to begin winding down its massive economic stimulus programme.
The better tone in world equity markets emerged after energy shares on Wall Street gained on the rise in oil prices, and this spread to Asia, where MSCI’s Asia-Pacific index, excluding Japan , rose 1.2 per cent.
On Wall Street, the Dow Jones industrial average was up 59.26 points, or 0.40 per cent, at 14,883.77. The Standard & Poor’s 500 Index was up 7.74 points, or 0.47 per cent, at 1,642.70. The Nasdaq Composite Index was up 33.44 points, or 0.93 per cent, at 3,626.79.
In Treasuries, the benchmark 10-year US Treasury note was down 2/32, the yield at 2.7727 percent.
European stocks also rose, snapping a sharp two-day drop, as Vodafone’s renewed talks on selling Verizon its stake in their cellular joint venture sent the UK firm’s stock to a 12-year high and sparked a brisk rally in the telecom sector.
The FTSEurofirst 300 was up 0.7 per cent at 1,207.05, led by a 3.5 per cent rise in telecoms stocks. The index had dropped about two per cent in the last two days.
However, an auction of new Italian debt showed investors remained concerned about the shaky coalition, with government borrowing costs over five years rising.
The MSCI world equity index, which tracks shares in 45 countries, was up 0.4 per cent.
In the currency market, the dollar rose to two-week highs and was on track for its largest daily gain against the euro in more than four months.
Most major risk asset markets had already been recovering ahead of the US economic data on signs that divisions among lawmakers in Britain and the United States would delay any imminent action on Syria in retaliation for alleged gas attacks last week.
“There is no doubt the last couple of days the markets have bounced and continued to recover from Tuesday’s selloff. A lot of that you can point to the better-than-expected second-quarter GDP numbers this morning,” said David Lyon, investment specialist at JP Morgan Private Bank in San Francisco.
President Barack Obama has told Americans a military strike against Syria is in their interests, and administration officials were expected to brief congressional leaders yesterday about plans to respond.
In the oil markets, the reduced likelihood of an immediate major supply disruption caused Brent crude to drop, ending its strongest two-day gain since January 2012.
Brent for October delivery hit a low of $114.94 a barrel, down $1.67, before recovering to trade around $116.00. It jumped over five per cent in the previous two sessions, posting its strongest two-day gain since January 2012.