Oil prices, government bond yields and stocks rose on Monday to their highest levels since the autumn of 2008 as investors grew more confident that the US economic recovery is gaining speed.

Buying was sparked by data suggesting that the service sector expanded for the third month running and by the positive US jobs report released last Friday, when most markets were closed.

Oil surged 2.1 per cent to close at $86.62 a barrel on Monday, its highest level since October 2008. Ten-year Treasury notes reached 4.01 per cent during Monday’s trading, a level last touched also in October 2008.

Rising oil prices and bond yields can be bad for stocks, but the S&P 500 stock index rose 0.8 per cent to 1,187.44, its highest level since September 2008. Since March 2009, the index has gained more than 75 per cent.

“Stronger data and the perception that the US economy is finally gaining traction is good news for stocks,” said Alan Ruskin, strategist at RBS ­Securities. “But you can reach a point where the gains for risky assets are at risk from rising oil and bond yields.”

James Hamilton, an economist at the University of California, San Diego, said: “I don’t think $85 a barrel is enough to derail the recovery.”

Oil has risen 70 per cent from a year ago and analysts anticipate that rising consumption in Asia, and stabilisation in the west, will draw down once-towering petroleum inventories.

“There’s nothing from the fundamentals that necessarily warrants this surge in crude oil prices we’ve seen over the last couple of weeks,” said Edward Morse, head of commodities research at Credit Suisse in New York.

Prices rose as the US Federal Reserve met to consider the discount rate at which it lends to banks in emergencies. Before the financial crisis, the rate was a full percentage point above the Fed funds rate. It is now at 0.75 per cent, compared with a Fed funds rate of 0-0.25 per cent. Investors expect the Fed to restore the traditional relationship between the two rates as it normalises monetary policy.

The first leg of this week’s $82bn in Treasury debt sales, the auction of $8bn inflation bonds, attracted good demand on Monday, but sales of 10-year notes on Wednesday and 30-year bonds on Thursday will provide a true test of sentiment.

“At this juncture, we maintain that value investors will be lured in to buy at the auctions, but this week’s results will be important for any adjustment in our medium-term outlook on rates,” said George Goncalves, head of interest rate strategy at Nomura Securities.

The Institute of Supply Management’s services sector index rose from 53 in February to 55.4. Readings above 50 signal expansion.

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