Global stocks, euro rise on progress in Italy; S&P 500 at record

Mon Apr 29, 2013 5:12pm EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - World stock indexes and the euro advanced on Monday as the formation of a new government in Italy eased uncertainty about the political future of the country, the third-largest economy in the euro zone, while the S&P 500 closed at a record high.

The gains on Friday extended the S&P 500's recent rally, bringing the index's increase for the year-to-date to 11.8 percent.

Expectations of more easy money from the U.S. Federal Reserve and the European Central Bank, which would offset the risk of future disappointment over global economic recovery, also boosted stocks.

Recent signs of weak U.S. growth have raised expectations the Fed will keep its pace of bond buying unchanged at $85 billion a month at its two-day policy meeting beginning on Tuesday, while the ECB is widely expected to announce an interest rate cut when it meets on Thursday.

"After the election there was a lot of uncertainty about whether Italy could form a government, so now there is not only a great deal of relief over that, but also expectations for additional monetary policies from the ECB," said Alec Young, global equity strategist at S&P Equity Research in New York.

Investors welcomed the formation of a broad coalition government in Italy under new Prime Minister Enrico Letta, two months after inconclusive general elections, though investors remain cautious over how long the new growth-focused government will survive.

The resolution of Italy's political stalemate helped bring its five- and 10-year borrowing costs down to their lowest level since October 2010 at a bond sale on Monday, while yields on 10-year debt in the secondary market fell 13 basis points to 3.93 percent.

MSCI's world equity index .MIWD00000PUS was up 0.7 percent, while the broad FTSE Eurofirst 300 index .FTEU3 of top European shares closed up 0.5 percent, led higher by Milan's FTSE MIB .FTMIB, which rose 2.2 percent.   Continued...

Traders work on the floor at the New York Stock Exchange, April 22, 2013. REUTERS/Brendan McDermid