Stocks end month on firmer ground

Dow trades within sight of record highs

Thursday 22:30 GMT. Global stocks ended the month on firmer footing after sharp but brief wobbles as investors expressed optimism over the US economy and central bank largesse.

Away from equities investors were a bit more cautious, however, with the dollar index and “haven” bonds adding to recent gains and commodities delivering mixed signals about the extent of risk appetite.

The FTSE All-World index rose 0.5 per cent to 233.55, just shy of last week’s closing four-year peak of 235.9. The global measure ended the session off its highs as the S&P 500 erased its gains late in the session to close slightly lower on the day. In Europe, the FTSE Eurofirst 300 rose 0.9 per cent, following a 1.4 per cent jump for the Asia-Pacific region.

Asia-based traders got their first chance to react to Wall Street’s strong showing on Wednesday, and New York initially added to that advance with the S&P 500 at one point touching 1,521 points. The S&P 500 fell 0.1 per cent on the day, but still ended the month 1 per cent higher.

Softer-than-forecast fourth-quarter US GDP data appeared to have been mostly cancelled out by better than expected weekly jobless claims numbers and the Chicago PMI hitting an 11-month high in February.

This left the main US stock barometer only about 3 per cent shy of the record closing level of 1,565 last seen in 2007.

The Dow Jones Industrial Average of blue-chip names also ended the session slightly lower on the day. But the index traded within sight of an all-time record earlier in the session as the equity market regained support following a couple of hiccups in the past two weeks.

First, racier positions were pared when investors inferred from the minutes of the Federal Reserve’s monetary policy meeting that the US central bank was likely to exit its market-supportive asset purchase programme sooner than expected.

Next, the market was presented with the return of heightened eurozone sovereign debt tensions after an inconclusive Italian election raised fears about the ability of some heavily indebted countries to tackle their budget problems.

However, while all this was going on, data out of the US continued to suggest steady improvement in the world’s biggest economy, with particular attention paid to the housing market.

And then, in testimony on Tuesday and Wednesday before Congress, Fed chairman Ben Bernanke appeared to make clear that the market was incorrect to interpret the minutes in the way it had, and in fact the Fed would be holding its hand for some time to come.

Bulls also pointed to a solid auction of Italian debt as evidence the euro-funk was not all that funky, after all.

“While markets still wonder whether Italian politics will derail the weak recovery, they seem eager to downplay the risks,” said analysts at Barclays in a note. “Markets also know global central banks are on their side.”

That was certainly the message investors in Japanese equities seemed to have received. The Nikkei 225 surged 2.7 per cent to close back on a recent 53-month high, after the return of broader market risk appetite reduced the attractiveness of the yen in the past few days and thus again helped Japanese export stocks.

The yen remained pressured by expectations that the Bank of Japan will extend monetary easing to boost the economy, and is down 0.1 per cent on Thursday to Y92.35.

Elsewhere in Asia, the Shanghai Composite index in China bounced 2.3 per cent, helped by global effervescence and news of better than forecast earnings from China Vanke, the country’s biggest developer.

Amid all this bullishness for stocks, however, some asset classes pointed to a less rosy interpretation of current conditions.

The euro fell 0.4 per cent at $1.3090, only about 70 pips above the low it touched following the Italian election.

Similarly, Rome’s 10-year implied borrowing costs were off their recent highs of 4.96 per cent, but at 4.72 per cent – down 8 basis points on the day – they are still about 30bp above last week’s closing level. Milan’s stock market has reversed earlier weakness and is up 0.6 per cent.

Such uncertainty, coupled with doubt about the impact on the US economy of Washington’s upcoming budget sequestration, is helping underpin demand for core fixed-income products.

The yields on 10-year Treasuries – also supposedly suppressed by the Fed’s interventions – fell 1bp to 1.88 per cent, having earlier in the week brushed 2.03 per cent. The dollar index rose 0.4 per cent.

German Bund yields, which at the start of the month were above 1.7 per cent, traded flat on the day at 1.45 per cent.

Action in resources also pointed to only patchy risk appetite. Brent crude see-sawed before closing back below $112 a barrel and copper was off 0.5 per cent to $3.53 a pound.

Gold fell $18 to $1,579 an ounce, as Bloomberg noted that assets in the SPDR Gold Trust, the biggest exchange-traded product backed by the precious metal, have fallen to the lowest since August.

Additional reporting by Jamie Chisholm in London

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