The S&P 500 closed at a fresh high for the year and crowned a global equity rally on Thursday, as investors played down disappointing figures on US retail sales and focused on cautiously optimistic comments from the Federal Reserve and unexpected signs of economic growth in Europe.

“The latest US data are a bit of a dampener for the positive risk trade that, until these numbers, was feeling the positive afterglow of the FOMC meeting,” said Alan Ruskin, global head of strategy at RBS Securities. The Fed said US economic activity was “levelling out”, as opposed to its previous assessment that the pace of contraction was slowing, as it said it would slow purchases of Treasury securities before ending the programme in October, a month later than initially indicated.

The US central bank also said household spending had continued to show signs of stabilising – although there was little evidence of that from US retail sales figures released on Thursday, noted Paul Dales at Capital Economics.

“In fact, they show that falling employment, slowing wage growth and a limited access to credit are still taking their toll on spending,” he said.

Sales slipped 0.1 per cent in July, confounding expectations that the government’s “cash for clunkers” car incentive programme would help deliver a 0.6 per cent increase.

“Overall, these data are a stark warning that households are in no fit state to drive a decent economic recovery,” said Mr Dales. “We continue to expect GDP growth of just 1 per cent next year.”

A further blow came from news that initial claims for jobless benefit in the US rose last week.

But there was much more positive economic news on the other side of the Atlantic.

The German and French economies both unexpectedly grew by 0.3 per cent in the second quarter, helping to keep the contraction in the eurozone as a whole to just 0.1 per cent.

“The better-than-expected GDP figures, taken together with recent firm monthly indicators, will almost certainly lead to upward revisions to the European Central Bank’s growth forecasts next month,” said Nick Kounis, chief European economist at Fortis Bank.

“This would make additional monetary policy easing even less likely and start to focus market attention on an exit strategy.”

European government bonds initially fell after the release of the growth figures, but rallied along with Treasury bonds after the US retail sales and jobless claims data.

The yield on the 10-year German Bund fell 4 basis points to 3.42 per cent, while the two-year Schatz yield fell 7bp to 1.38 per cent, the lowest for a week. The yield on the 10-year Treasury fell 10bp to 3.61 per cent as investors cheered solid demand for a record $15bn auction of 30-year bonds.

On the currency markets, the euro climbed to a one-week high against the dollar following the GDP data and maintained its firmer tone after the US releases.

Sacha Tihanyi, currency strategist at Scotia Capital, noted that France and Germany’s return to growth flew in the face of criticism of the ECB for not moving quickly enough in loosening monetary policy or undertaking QE measures: “This highlights a factor we feel is a fundamental pillar of support for the euro – a more conservative monetary policy approach that will pay definite dividends for euro bulls should inflation eventually spike down the road.”

Equity markets endured a choppy session as investors digested the day’s economic releases. In New York the S&P 500 closed up 0.7 per cent after recouping an early decline, while the FTSE Eurofirst 300 index of leading European stocks rose 0.7 per cent. In Tokyo, the Nikkei 225 Average added 0.8 per cent and Shanghai climbed 0.9 per cent.

Equities in other emerging markets rebounded after two successive days of losses, with Mumbai rising an impressive 3.3 per cent. Meanwhile, credit spreads were mixed as the US lagged behind gains in Europe.

Optimism over the global economic outlook helped commodities stage a broad rally. Copper touched a 10½-month peak and US oil rose 36 cents a barrel to $70.52, while gold briefly traded above $960 an ounce.

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