GLOBAL MARKETS-Stocks rise after China cuts rates; gold tumbles

GLOBAL MARKETS-Stocks rise after China cuts rates; gold tumbles

Thu Jun 7, 2012 2:51pm EDT


* China cuts rates 25 basis points in surprise move

* Fed offers few hints of stimulus, supporting dollar

* Spanish bond yields fall after strong debt sale

By Wanfeng Zhou

NEW YORK, June 7 (Reuters) - Global stocks and the euro rose o n T hursday after China unexpectedly cut interest rates to shore up growth, but optimism was tempered by Federal Reserve Chairman Ben Bernanke, who disappointed investors looking for further stimulus for the U.S. economy.

Gold tumbled 2 percent as investors unwound bullish bets built on expectations of Fed easing. Bullion was hit particularly hard compared with equities and other commodities, as it has been heavily used by institutional investors to hedge against economic uncertainties.

Bernanke, in testimony to Congress, said the Fed was ready to shield the U.S. economy if financial troubles mount, but his tone was far from crisis mode.

He said the central bank was closely monitoring "significant risks" to the U.S. recovery from Europe's debt and banking crisis. But he noted: "Despite economic difficulties in Europe, the demand for U.S. exports has held up well."

"People had built up this hope that something significant was going to happen, and perhaps that was disappointing," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The MSCI world equity index rose 1.0 percent to 302.24 points, after hitting its highest level in more than a week.

Hopes that central banks in the United States and Europe would act to bolster the global economy had driven world shares up more than 3 percent this week after steep losses in May.

U.S. stock indexes also gained, but were well off early highs. The Dow Jones industrial average was up 112.09 points, or 0.90 percent, at 12,526.88. The Standard & Poor's 500 Index was up 8.14 points, or 0.62 percent, at 1,323.27. The Nasdaq Composite Index was up 5.56 points, or 0.20 percent, at 2,850.28.

China's interest rate cut helped boost U.S. companies linked to its commodity-hungry industrial complex. U.S. Steel Corp climbed 1.7 percent to $20.38, and miner Freeport-McMoRan Copper & Gold Inc edged up 1 percent to $33.98. The S&P Materials index gained 1 percent.

European shares closed higher, but well off an earlier peak. The FTSEurofirst 300 provisionally closed up 1 percent at 983.81, its highest close since May 29.

The euro rose 0.2 percent to $1.2596, recovering from early losses. It briefly fell after Fitch slashed Spain's credit rating by three notches and signaled it could make further cuts as the cost of restructuring the country's troubled banking system spiraled and Greece's crisis deepened.

Against the yen, the dollar rose 0.5 percent to 79.61 .

CHINA'S SURPRISE CUT

China delivered twin surprises on interest rates on T hursday, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set competitive lending and deposit rates in a step along the path of liberalization.

China's first rate cut since the global financial crisis underlined heightened concern among policymakers worldwide that the euro area's deepening debt problems are threatening economic growth.

The news had earlier boosted oil prices on expectations that faster growth in the world's largest energy consumer could boost demand. But gains faded after Bernanke's comments.

Brent crude slipped 75 cents to $99.91 a barrel, after rising as high as $102.45 a barrel. U.S. crude was down 23 cents at $83.79, after reaching $87.03.

Spot gold was down 1.8 percent at $1,587.89 an ounce, off a high of $1,628.80 an ounce.

U.S. Treasuries prices erased losses after Bernanke's comments. The benchmark 10-year U.S. Treasury note was up 2/32, the yield at 1.6524 percent.

The better tone in the markets allowed Spain to sell 2.1 billion euros of fresh debt o n T hursday, just days after the country's treasury minister warned that access to the credit markets was under threat.

Yields initially fell 10 basis points on Spain's existing 10-year bonds after the auction, to 6.2 percent.

GLOBAL MARKETS-Stocks rise after China cuts rates; gold tumbles | Reuters