Euro and stocks rally as China reassures investors

By Daniel Bases

NEW YORK (Reuters) - The euro staged a broad rally and U.S. stocks jumped about 3 percent on Thursday, after China said Europe remains a key investment market for its foreign-exchange reserves.

The People's Bank of China said a Financial Times report that Beijing was concerned about its euro-zone bond holdings due to the European debt crisis was groundless. The report had driven the euro to a near four-year low on Wednesday and cut short a rally in U.S. stocks.

Stocks in Europe and emerging markets also jumped and crude oil prices jumped 4 percent as the perceived risk that China might change the composition of its foreign exchange reserves was reduced.

"Reports from the front suggested that investors might become frightened that China could do something drastic," said Douglas Peta, an independent market strategist in New York. "Getting some assurance that Chinese sales of European sovereign debt isn't imminent is making everyone feel better."

European shares closed above the 1,000 mark for the first time in just over a week while government debt prices fell as the bid for safety ebbed. Stocks in emerging markets also surged, with Brazil shares up more than 3 percent.

Bargain hunters picked through stock markets that had been beaten down by fears that Europe's debt crisis could spark a credit crunch and undermine the global economic recovery.

At the close of trade, the Dow Jones industrial average .DJI gained 284.54 points, or 2.85 percent, to 10,258.99. The Standard & Poor's 500 Index .SPX rose 35.11 points, or 3.29 percent, to 1,103.06. The Nasdaq Composite Index .IXIC climbed 81.80 points, or 3.73 percent, at 2,277.68.

Microsoft Corp (MSFT.O: Quote) climbed 4 percent to $26, a day after ceding its position to Apple (AAPL.O: Quote) as the largest technology company by market cap. FBR Capital Markets upgraded Microsoft, a Dow component, to "outperform," citing its improving fundamentals and recent share underperformance.