GLOBAL MARKETS-U.S. shares rise on Fed hopes; euro up on Draghi remarks

Ryan Vlastelica
Thursday, 21 Nov 2013 | 1:14 PM ET

* U.S. data lessens fear of Fed tapering

* Euro rises as ECB plays down risk of deposit rate cut

* Dollar rises above 100 yen, BOJ keeps policy loose

* Copper, oil rally; gold holds close to 4-month lows

NEW YORK, Nov 21 (Reuters) - U.S. stocks rose on Thursday as the latest economic data suggested the Federal Reserve would not begin to slow its stimulus soon, although conflicting views over the issue limited gains globally.

The euro rebounded after the head of the European Central Bank moved to quell growing talk that the ECB was considering an unprecedented policy of making banks pay to deposit cash overnight in a bid to boost economic activity.

An indication the Fed may be ready to scale back its $85 billion a month in stimulus had weighed on equities Wednesday and drove the dollar to a more than four-month high against the yen earlier on Thursday. But the U.S. central bank has repeated it will not taper until the economy can stand on its own and interest rates will remain low well after stimulus is cut back.

Data on factory activity in November in the U.S. mid-Atlantic region indicated the economy continues to struggle to gain traction. The Philadelphia Federal Reserve Bank on Thursday reported its business activity index fell to its lowest level since May.

"The Fed minutes hinted that tapering could come soon, which spooked us yesterday, but that this missed expectations so much adds to the idea that the Fed will continue to be accommodative," said Adam Sarhan, chief executive of Sarhan Capital in New York.

The Dow Jones industrial average was up 74.11 points, or 0.47 percent, at 15,974.93. The Standard & Poor's 500 Index was up 9.37 points, or 0.53 percent, at 1,790.74. The Nasdaq Composite Index was up 30.72 points, or 0.78 percent, at 3,951.99.

The rally on Wall Street failed to translate overseas. European shares were little changed near five-year highs, with investors finding few reasons to keep pushing prices higher.

Equity markets were also pressured by surprisingly weak data from China and the euro zone, which outweighed upbeat comments from the Bank of Japan as it left its massive stimulus policy in place.

The flash estimates of purchasing managers' indexes underlined the fragility of the global economic recovery while the European PMIs underlined the lopsided nature of the euro zone's recovery from recession.

MSCI's world equity index, which tracks 45 countries, was little changed on the day.

In currencies, the euro rebounded after ECB chief Mario Draghi moved to dispel talk that the bank was considering charging banks to deposit cash overnight in a bid to boost economic activity.

Bloomberg had reported on Wednesday the ECB might cut the deposit rate into negative territory, citing unnamed sources.

Soon after Draghi's comments, the euro was up 0.1 percent at $1.3458. It had started the day weaker on views the Fed could scale back its stimulus earlier than consensus forecasts, which had been pointing to March.

Earlier, the dollar had been on the front foot and world shares had been under pressure from the Fed talk, triggered by the release of minutes from the last policy meeting on Wednesday. The minutes showed officials felt there was room to begin scaling back the bank's bond purchase program at one of their next few meetings, if economic conditions warranted it.

That shift in perception caused a big spike in U.S. bonds yields, boosting demand for the dollar, which hit a four-month high of 100.99 yen, up 1 percent on the day.

The U.S. dollar index, which measures the dollar against a basket of currencies, was flat.

The benchmark 10-year U.S. Treasury note was unchanged in price, with the yield at 2.7915 percent.

German 10-year bond yields rose 6 basis points to 1.77 percent, encouraging equity investors to lock in some of the profits made this year from the Fed's money-pumping policy.

"Having got hooked on both indefinite QE and low interest rates, investors are becoming increasingly restless and inclined to taking profits," said Alastair Winter, chief economist at Daniel Stewart.


The prospect of more Fed stimulus boosted the oil market, with Brent crude up 1.3 percent and U.S. crude futures up 1.6 percent.

Oil investors were also watching whether world powers will be able to strike a deal with Iran over its nuclear program.

"Coming towards the end of the year, there are two taperings that people are watching - the tapering of Fed bond purchases and Iranian sanctions," said Olivier Jakob at Petromatrix consultancy in Switzerland. Both would depress prices.

Gold rose 0.2 percent on the day, following a drop of 2.5 percent on Wednesday. Copper gained 0.8 percent.