World stocks rallied and government bonds dropped after the Federal Reserve said the US recession appears to be easing and company earnings reports beat forecasts. US stocks cemented early gains after the central bank said the pace of contraction in the economy appeared to be slower, suggesting an improvement in the economic outlook that nonetheless may remain weak for a time.
"It's a good read on the economy, it's good for stocks," said Rick Campagna, a portfolio manager with Provident Investment Council in Pasadena, California. "It follows along all of the 'green shoots' that we've been seeing."
The Dow Jones industrial average climbed 168.78 points, or 2.11 percent, to 8,185.73, its highest since April 17. Wal-Mart was among the top gains in the blue chip index, rising 4.09 percent to $50.45 after the world's largest retailer said that 17 percent of measurable traffic in February came from new households.
Telecommunications company Qwest Communications International Inc and Time Warner Inc, the second-largest US cable operator, beat expectations on their quarterly financial results. The shares rose 3.1 percent and 1 percent, respectively. In Europe, Germany's Siemens rose 8 percent after reporting strong first-quarter figures, while Spain's Santander, the euro zone's largest bank, gained more than 6 percent after beating forecasts.
Global shares drew demand even as the US Commerce Department said the American economy shrank 6.1 percent in the first quarter, more than the 4.9 percent decline forecast by economists in a Reuters survey. Investors viewed the data as backward-looking and took a sharp decline in inventories to mean that manufacturers would ramp up activity. For story.
"The expectation is this is the worst and things get better from here because we will start to rebuild inventories" from extremely low levels, said Paul Nolte at Hinsdale Associates in Hinsdale, Illinois. The S&P 500 Index topped a key level of 875, marking its highest point in 3-1/2 months, before closing up 18.48 points, or 2.16 percent, at 873.64. The Nasdaq Composite Index climbed 38.13 points, or 2.28 percent, to 1,711.94.
The MSCI world equity index jumped 2.37 percent to 222.92, earlier reaching a 3-1/2-month high at 223.98. A gauge of emerging market stocks rose 3.57 percent.
In addition to signalling stronger growth, which fuels inflation that erodes the value of bonds' fixed payments, the Fed statement disappointed Treasury investors hoping for an expansion of the central bank's program of supporting markets via purchases of government debt. The Fed has left interest rates at a record low level since December. After its meeting in March, the US central bank announced plans to boost quantitative easing and pump an additional $1.15 trillion into the economy with purchases of mortgage and US Treasury debt.
Longer-term Treasury bonds sold off the most after the Treasury said it would more frequently sell 30-year debt to fund economic stimulus plans and financial rescue spending. Benchmark 10-year Treasury notes dropped 19/32, pushing their yields, which move inversely to price, higher by 0.07 percentage point to 3.09 percent. Thirty-year bonds plunged more than one point.
Crude oil rose $1.05 to $50.97 a barrel as the Fed statement raised expectations for consumption, and after sharp decline in gasoline supplies. In the currency market, the US dollar jumped against the Japanese yen after the Fed statement boosted appetite for US investments. It still fell against the euro, which was buoyed earlier as a European Commission survey showed economic sentiment in the region improved more than expected in April from March. In late afternoon trading, the dollar was up 1.1 percent against the yen to 97.49. The euro rose 0.9 percent versus the dollar to $1.3265.
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