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World stocks rally to near 3-year high, dollar weakens

World stocks surged toward three-year highs on Tuesday and the US dollar eased against the euro as investors bet the US Federal Reserve will keep its easy monetary policy in place at its meeting this week.

April 27, 2011 / 12:49 PM IST

World stocks surged toward three-year highs on Tuesday and the US dollar eased against the euro as investors bet the US Federal Reserve will keep its easy monetary policy in place at its meeting this week.

Wall Street extended gains, with the Standard & Poor's 500 Index and Nasdaq rising as much as 1 percent at midday, helped by solid earnings at Ford Motor Co, 3M Co  and United Parcel Service.

Investors are focused on the U.S. central bank's first scheduled briefing with reporters in its 97-year history, which will cap the end on Wednesday of a two-day meeting of the policy-setting Federal Open Market Committee.

Markets were buoyed by a view that even as the Fed nears the end of its second phase of bond buying, a program known as quantitative easing, or QE2, it will hold on to its portfolio and its current level of monetary accommodation for some time.

"There will probably not be a QE3, but they will probably not withdraw QE2 either. They are going to leave their balance sheet at this level for some time," said Constance Hunter, chief economist of Aladdin Capital Holdings in Stamford, Connecticut.

MSCI's all-country world stock index rose as much as 0.67%, climbing to a fresh 2011 peak of 352.31 -- a level last seen in mid-2008. At midday in New York, the index was up 0.62% at 352.14.

U.S. government debt prices rose before the auction of $35 billion in two-year notes later in the session and ahead of Fed Chairman Ben Bernanke's highly anticipated news conference on Wednesday.

The benchmark 10-year U.S. Treasury note was up 8/32 in price to yield 3.34%.

"Investors are unlikely to learn from Bernanke when the Fed will tighten as it is doubtful that he himself knows," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

The Fed is expected to say it will complete its USD 600 billion bond-buying program, which is scheduled to end in June.

If the Fed were to surprise the market and turn more hawkish, it would pose a risk to the sizable amount of dollar shorts in the currency market, analysts said.

The InterContinental Exchange's U.S. dollar index, which measures the dollar's performance against a basket of major currencies, was down 0.22% at 73.825, while the euro was up 0.40% at USD 1.4638.

Both the S&P 500 and the iconic Dow Jones industrial average set new intraday highs for 2011 while climbing to near three-year peaks. The S&P 500 is up 7% for the year. The Dow hit an intraday high at 12,605.36, while the S&P 500 reached an intraday high at 1,349.55.

Investors were cheered by a report that showed consumers felt better about the short-term outlook. The Conference Board, an industry group, said its index of consumer attitudes rose to 65.4 in April from a revised 63.8 in March.

The Dow Jones industrial average was up 116.85 points, or 0.94%, at 12,596.73. The Standard & Poor's 500 Index was up 12.73 points, or 0.95 percent, to 1,347.98. The Nasdaq Composite Index was up 24.55 points, or 0.87%, at 2,850.43, after earlier hitting a fresh 52-week high of 2,856.61.

Crude oil rebounded slightly, while silver and gold tumbled after pushing to new highs in the case of gold early Monday.

North Sea Brent crude futures fell 2 cents to USD 123.64 a barrel.

U.S. crude futures slid 59 cents to USD 111.69 a barrel.

Silver was set for its largest one-day fall in six weeks after having hit fresh 31-year highs, while gold came under pressure from investor uncertainty over the likely course of U.S. monetary policy.

Spot silver fell as much as 4.9% to a session low of USD 44.63 an ounce, after having risen on Monday to within 17 cents of the record USD 49.48 set in January 1980.

Gold hit a record high of USD 1,518.10 a troy ounce on Monday but slipped to $1,501.

"The rally has been strong. It's not surprising to see profit-taking ahead of the FOMC meeting," said Peter Fertig, a consultant at Quantitative Commodity Research.

"Markets expect it will be a dovish statement from the U.S. Fed, but there are worries about them ending (quantitative easing) ahead of time," Fertig said.

European shares rose for the fourth straight session and hit a two-week closing high, boosted by corporate results in both the United States and Europe, including those of Swiss bank UBS.

The FTSEurofirst 300 index of top European shares rose 0.3% to end the day at 1,145.96 points, the highest close since April 11.

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