September 7, 2012 / 12:32 AM / 5 years ago

ECB's bond-buy plan lifts shares, U.S. payrolls eyed

5 Min Read

A man passes an electronic board displaying market indices from around the world outside a brokerage in Tokyo August 23, 2012.Yuriko Nakao

LONDON (Reuters) - World shares gained on Friday and yields on riskier euro zone government debt fell sharply as investors welcomed the bold measures by European Central Bank to tackle the region's three-year-old debt crisis.

U.S. stock index futures pointed to more gains on Wall Street ahead of the release of August nonfarm payroll data, due at 8:30 a.m. EDT (1230 GMT), which will be key to expectations of more monetary easing by the Federal Reserve. .N

The main driver of the market's rises is still the ECB's new and potentially unlimited bond buying plan, which it is hoped will lower the borrowing costs for heavily indebted nations like Spain and Italy and ease fears over the future of the euro.

The broad FTSEurofirst 300 index .FTEU3 of top European companies, which jumped 2.6 percent on Thursday when the ECB announced the plan, added a further 0.6 percent to 1,111.64 points on Friday.

The euro touched a two-month high against the dollar and the safe-haven yen, while the greenback eased against a basket of major currencies .DXY to a four-month low of 80.87.

"I am positive on the market in the near term. You have got the policy response coming through, valuations are still OK, and the macroeconomic backdrop isn't all that bad. These three things add to the momentum in the market," said Graham Bishop, equity strategist at Exane BNP Paribas.

The initial reaction to the ECB program had sent U.S. stocks to multi-year highs on Thursday with the S&P 500 index .SPX back at levels last seen in May 2008 when the financial crisis was still gathering pace.

Asian shares outside Japan .MIAPJ0000PUS posted their biggest daily gain in six weeks on Friday. They gained an extra boost from a jump in Chinese stocks after authorities approved 60 new infrastructure projects this week in a bid to bolster flagging domestic growth.

The gains have lifted the MSCI's world equity index .MIWD00000PUS by 0.7 percent to 328.5, a rise of 2.5 percent over the past 24 hours. The index is back to its level of early May, when demand was still being supported by a massive injection of cheap three-year funds into the banking system by the ECB.

Euro Cheer

The single currency has seen a more muted but still positive response to ECB President Mario Draghi's latest measures, which came in the face of strong opposition by Germany's Bundesbank and won't take effect until a nation in trouble requests help.

The euro was up 0.4 percent at $1.2685, its highest level since early July, before Draghi made his dramatic pledge to do everything possible to save the euro.

The single currency was also at a two-month high against the safe-haven yen of 100.15 yen and an eight-month peak versus the Swiss currency at 1.2148 Swiss francs.

"Draghi has lowered the risk premium towards the euro," said George Saravelos, G10 FX strategist at Deutsche Bank. "We expect the euro to rise above $1.27 in the near term."

There were few doubts about the effect of the plan in the euro zone debt markets, where Spanish 10-year government bond yields fell 27 basis points to 5.8 percent - the first time they have been below 6 percent since May.

Equivalent Italian bonds were down 19 basis points at 5.13 percent.

Jobs Next

U.S. Treasury bond yields meanwhile were edging higher, extending their sharp rise from the previous day, as market attention switched to an anticipated stronger U.S. employment report, which would lower the prospect of a further Federal Reserve easing.

The private-sector employment report on Thursday showed that U.S. employers had added 201,000 jobs in August, easily beating economists' expectations for 140,000 new private-sector jobs.

The numbers have seen some analysts revise expectations for the key August non-farm payrolls report above the current median forecast of economists surveyed by Reuters, which calls for a rise of 125,000 jobs, still below the 163,000 seen in July.

Differing views on the prospects for a strong payroll number and the impact that would have on hopes for more Fed stimulus measures rippled through commodity markets on Friday.

Gold, which usually gains from any sign of central banks printing more cash, fell about half a percent to $1,695.70 an ounce, compared with Thursday's high of $1,712.91.

But Brent crude oil rose above $113 a barrel, with the jobs data also seen key to a decision on whether the United States would consider another emergency release of oil reserves.

Brent crude futures were 43 cents higher at $113.92 a barrel, and U.S. crude was down 32 cents at $95.85.

Additional reporting by Anirban Nag and Atul Prakash; Editing by Will Waterman

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