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GLOBAL MARKETS-Stocks rally on Chinese, U.S. data as euro rises

Published 06/14/2011, 04:34 PM
Updated 06/14/2011, 04:36 PM

* Global stocks rally; S&P pct rise biggest since April

* Less grim Chinese, U.S. data revive investor optimism

* Chinese inflation high but within central bank control

* Euro, oil, gold strengthen; bonds tumble

(Recasts lead, updates with Wall Street close levels)

By Richard Leong

NEW YORK, June 14 (Reuters) - Chinese data showing strong economic growth in the world's second biggest economy and U.S. consumer spending report that was not as weak as feared lifted stocks, oil and other growth-oriented markets on Tuesday.

In the currency market, investors drove up the euro after Greece managed to raise cash by selling bills on Tuesday, even though Greece became Standard and Poor's lowest-rated sovereign borrower on Monday.

The renewed appetite for risk, however, hammered government bonds with U.S. benchmark yields recording their biggest single-day jump in more than five months.

China's industrial output grew 13 percent in May from a year ago and inflation accelerated to 5.2 percent its fastest in almost three years, but its central bank raised the reserve requirement ratio for commercial lenders by 50 basis points for the ninth time in an effort to control rising prices. See [ID:nL3E7HE05P]

The determination of Chinese authorities to bring the 5.2 percent inflation rate down, raised hopes they could gradually cool local wage increases and its red-hot property market without sacrificing much in overall economic growth.

"Based on the data overnight, the odds are favoring a soft landing. It's making people more optimistic," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin, which oversees $400 billion in assets. "Sometimes no bad news is good news."

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In the United States, retail sales in May fell for the first time 11 months, but the drop was less than expected, signaling the resilience of American consumers despite sluggish job growth and a lousy housing market. [ID:nN14189765]

The U.S. stock market jumped, with the Dow Jones industrial average <.DJI> was up 123.14 points, or 1.03 percent, at 12,076.11. The Standard & Poor's 500 Index <.SPX> was up 16.04 points, or 1.26 percent, at 1,287.87. The Nasdaq Composite Index <.IXIC> was up 39.03 points, or 1.48 percent, at 2,678.72.

The S&P 500 posted its biggest one-day percentage rise since March, shaving its month-to-date loss to 4 percent.

Top European stocks <.FTEU3> gained 0.8 percent, while Tokyo's Nikkei <.N225> ended 1.0 percent higher.

Nikkei futures in Chicago <2NKc1> ended at 9,435, compared with its Osaka close of 9,570.

Some analysts cautioned the gains in stocks and could be short-lived as sovereign debt problems in Europe and the United States fester and the Federal Reserve's $600 billion bond program, which has helped support financial markets, expires at the end of June.

"It's the long term trend which is still disturbing. If you look at the S&P 500 they've lost over $1 trillion in value since the beginning of May -- that is telling," said Alan Valdes, director of floor operations at DME Securities in New York. "We were so oversold you had to see a plus day."

U.S. Fed Chairman Ben Bernanke, speaking at an event sponsored by the Committee for a Responsible Federal Budget, warned that a failure to increase the government's $14.3 trillion debt ceiling would risk United States' coveted AAA-rating and damage the U.S. dollar's status as a reserve currency. For more, see [ID:nW1E7GV02N]

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GREECE SELLS DEBT

Also reducing investor anxiety was Greece's ability to raise short-term funds after Standard & Poor's downgraded its rating closer to default territory. [ID:nN13126859]

Greece sold 1.625 billion euros ($2.33 billion) of 6-month T-bills at a yield of 4.96 percent, which was higher than May. But the bill auction attracted more foreign buyers, reflecting market expectations Greece will secure a second rescue package worth about 120 billion euros to stave off default.

On the other hand, the five-year cost of insuring against a Greek default rose to a record peak of 1,615 basis points, as did the yield on Greek government bonds. [ID:nLDE75D0ZT]

Greece's trials did little to discourage investors from buying the euro a day after it hit a record low against the Swiss franc

The Swiss currency, which falls when investors turn away from safe havens, declined more than 0.9 percent versus the euro and the U.S. dollar.

The euro rose to $1.4480 against the greenback, up 0.5 percent on the day

Investors also channeled money into commodities at the expense of government bonds.

ICE Brent July crude closed up 90 cents to $120.00 a barrel, touching its highest level in more than five weeks. U.S. oil futures ended up 2 percent at $99.20.

Spot gold

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A sell-off in the U.S. government bond market pushed benchmark yields to their highest level in almost two weeks at 3.09 percent. German Bund futures fell 49 basis points at 125.45 after posting a contract high of 126.11 on Monday. (Reporting by Chuck Mikolajczak, Chris Reese, Robert Gibbons, Frank Tang and Wanfeng Zhou)

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