NEW YORK (Reuters) - Switzerland's move to jettison a three-year-old cap on the franc threw global markets into turmoil on Thursday, sending the currency and most European shares soaring while bond yields and Swiss equities tumbled.
U.S. stocks closed lower, marking a fifth straight session of losses, as bank results disappointed and investors fretted over the potential impact of global economic weakness on U.S. corporate earnings.
In Europe, the franc jumped almost 30 percent in the chaotic minutes after the Swiss National Bank stunned markets by lifting a 1.20-per-euro cap that was created in 2011 to avert deflation at the height of the euro zone crisis.
The Swiss currency surged as high as 0.8500 franc per euro before paring gains to trade 16 percent higher at 1.01010. The sharp moves in financial markets shattered any hopes investors had that recent volatility might ease.
Switzerland's main share index fell 8.7 percent in its biggest single-day percentage loss in 25 years, wiping about $100 billion of market value off Swiss companies. The rise in the value of the franc is expected to deal a blow to Swiss companies whose businesses include big exports to Europe.
But major European stock indexes rose 2 percent or more on the prospect the European Central Bank was close to new stimulus, and shares in emerging markets also rose.
Some traders said Swiss officials must have expected a tide of euros from the ECB through stimulus known as quantitative easing, or QE, which is seen as positive for European stocks.
"The reason you're seeing Europe up so much, they're basically doing it on the premise of significant euro depreciation as a follow-on for QE," said Dan Morris, global investment strategist at TIAA-Cref, which has about $600 billion under management.
High volatility across all asset prices is the main characteristic of the current marketplace, Morris said.
"We're going to see this continued high volatility in equities, in fixed income and in currencies," Morris said. "What's driving that, you got monetary policy out of sync globally. U.S. going one way, ECB going another, Swiss going another, Sweden going another," he said.
MSCI's all-country stock index, a measure of stock performance in 45 countries, rose 0.24 percent. The pan-European FTSEurofirst 300 index of leading regional shares rose 2.88 percent to close at 1,393.41. The Euro STOXX 50 Index of European blue chips rose 2.2 percent.
Profit jitters have shaken investors. Expectations for U.S. fourth-quarter earnings have been scaled back sharply, with growth now estimated at 3.5 percent, compared with an Oct. 1 estimate of 11.2 percent, according to Thomson Reuters data.
The Dow Jones industrial average closed down 106.38 points, or 0.61 percent, to 17,320.71. The S&P 500 fell 18.6 points, or 0.92 percent, to 1,992.67, and the Nasdaq Composite shed 68.50 points, or 1.48 percent, to 4,570.82.
Gold rose as much as 3 percent to a four-month high after the shock Swiss move. U.S. gold futures for delivery in February rose 2.5 percent to settle at $1,264.80 an ounce.
All Swiss government bill rates and bond yields out to nine- year maturities traded below zero after the central bank scrapped the exchange rate cap and lowered interest rates to a negative 0.75 percent.
German 10-year yields reversed an earlier rise to hit new lows, while French and Belgian bonds underperformed their euro zone peers as the two countries were considered the main targets for Swiss central bank investment in the euro zone.
Yields on U.S. 30-year Treasuries struck a record low for a second straight session, and the benchmark 10-year bond rose 27/32 in price to push its yield down to 1.7411 percent.
The dollar plummeted to 0.736 franc, the lowest level since 2011, before paring losses. Broader concerns about the euro sent it to its weakest level in 11 years against the dollar, down 1.5 percent to $1.1618, while the greenback was last down 0.91 percent against the safe-haven Japanese yen, at 116.28 yen.
Oil prices dropped after breaking above $50 a barrel, with the falling dollar followed by weak U.S. economic data that raised concerns about demand. The Philadelphia Federal Reserve Bank reported a sharp slowdown in the growth rate of factory activity in the U.S. mid-Atlantic region in January.
Global benchmark Brent fell $1.02 to settle at $47.67 a barrel. U.S. crude settled down $2.23 to trade at $46.25 a barrel.
Reporting by Herbert Lash; Editing by Meredith Mazzilli and Leslie Adler