NEW YORK (Reuters) - World shares rose to near 3-1/2 month highs on Thursday, following hints that global growth engine China is eyeing new support for its economy, while mildly disappointing U.S. data weakened the dollar.
Investors were heartened by comments from German Chancellor Angela Merkel that appeared to back the European Central bank’s efforts to fight the euro zone crisis.
“The decline in Spanish yields off of that has been a big boon to the market,” said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
A small unexpected rise in U.S. jobless claims and a surprise drop in housing starts renewed expectations the Federal Reserve would engage in a third round of large-scale bond purchases, dubbed QE3, to help the sluggish economy, spurring a rebound in safe-haven U.S. and German government bonds.
A report from the Philadelphia Federal Reserve also signaled business contraction in the U.S. Mid-Atlantic region in August, though it was milder than in July.
“We are still pricing in QE3,” said Ellis Phifer, senior market analyst at Raymond James in Memphis, Tennessee. “If the numbers are bad, stimulus will be closer.”
Other markets were holding in recent ranges as traders await possible policy action from U.S., European and Chinese central bankers.
“The markets in aggregate are in neutral right now,” said Lawrence Creatura, co-portfolio manager of the Federated Clover Small Value Fund in Rochester, New York.
Oil prices held near 3-month highs on worries about possible supply disruption from tension in the Middle East and a sharp drop in U.S. inventories.
Gold prices hovered above $1,600 an ounce on hopes of central bank stimulus, but somewhat encouraging U.S. economic data pared expectations any such moves might happen soon.
On Wall Street, the Standard & Poor’s 500 index .SPX managed to hold above 1,400 point mark, close to a four-year high. Analysts said stocks will likely stay around current levels through options expiration on Friday.
At midday, the Dow Jones industrial average .DJI was up 69.50 points, or 0.53 percent, at 13,234.28. The Standard & Poor’s 500 Index .SPX was up 7.96 points, or 0.57 percent, at 1,413.49. The Nasdaq Composite Index .IXIC was up 24.34 points, or 0.80 percent, at 3,055.27.
Among big movers, Cisco Systems (CSCO.O) rose nearly 8 percent to $18.70 a share after the world’s largest network equipment market reported better-than-expected results and raised its dividend.
“Cisco shed some light on the future. It shows a bit more optimism,” said Federated’s Creatura.
Developments at several top U.S. companies, however, kept a lid on gains.
Wal-Mart Stores (WMT.N), the world’s No. 1 retailer, said its full-year results may miss Wall Street expectations as growth slows in international markets. Its stock fell 3.3 percent to $71.97.
Shares of Facebook (FB.O), the world’s biggest Internet social network, lost 6 percent as a lockup period that prevented some insider sales came to an end. They last traded at $19.95, down 48 percent from the $38 IPO price.
Still, the overall U.S. stock market showed resilience, lifting the global MSCI index .MIWD00000PUS by 0.61 percent to 324.70 points, a level last seen on May 4.
Top European shares .FTEU3 erased early losses, rising 0.24 percent to 1,103.36.
In the currency market, the dollar turned lower against most major currencies after the latest data on U.S. jobless claims and home construction. The dollar index .DXY was 0.32 percent lower at 82.37.
The euro stemmed its recent slide against the greenback, rising 0.58 percent to $1.2359. <FRX/>
Hopes of additional ECB interest rate cuts were kept alive by euro zone data confirming that inflation - the ECB’s main focus - remained steady in July. It came two days after reports showed the bloc’s economy sliding back toward recession.
The modest uptick on expectations of further central bank stimulus briefly revived some appetite for bonds, lowering their yields. But demand for Treasuries and Bunds faded as stock markets advanced to session highs.
Benchmark 10-year Treasury notes were down 3/32 in price, yielding 1.8259 percent. The yield touched a three-month high of 1.8572 percent earlier, according to Reuters data.
German Bund futures rose 33 basis points to 141.74 after hitting their lowest level since July 2 earlier. <GVD/EUR>
In commodity trading, Brent crude futures for October delivery were 30 cents higher at $114.61 a barrel, while U.S. oil futures were 95 cents higher at $95.28 a barrel. <O/R>
Gold rose for a second day, up 0.77 percent at $1,615.21 an ounce. <GOL/>
Additional reporting by Edward Krudy and Chuck Mikolajczak in New York, Marc Jones, Jan Harvey and Anirban Nag in London; Editing by Dan Grebler