New York: The euro jumped against the dollar on Friday after the head of the European Central Bank said the single currency was not in danger and US stocks pushed higher, led by bank shares a day after the US Senate passed the most sweeping overhaul of financial regulation since the 1930s.
But worries about euro zone sovereign debt crisis continued to take a toll on investors’ appetite for risk, US treasuries debt prices rose through most of the morning as fears that global fiscal tightening would crimp an economic recovery drove a bid for safety, but turned as stocks rose. European shares hit a more than eight-month low but pared losses after the comments on the euro by the ECB president, Jean-Claude Trichet.
German lawmakers on Friday backed the $1 trillion rescue plan for the euro zone.
Skittish trading on a day when many US equity options and some options on stock indexes expire contributed to market volatility.
The price of spot gold, which hit a record high one week ago, was down for a fifth consecutive day, while crude oil pared earlier losses, a day after touching a seven-month low.
The euro traded up 0.70% at $1.2552, on pace for its first weekly gain against the greenback in six weeks. Bearish sentiment against the currency had become so extreme in the midst of the Greek-led debt crisis that investors started to buy the euro zone currency in case of intervention.
European finance ministers were to meet later on Friday to discuss changes to budget rules to prevent another Greek-style debt crisis.
“The vote in Germany doesn’t solve all the problems in the euro zone, but it demonstrates political will and is an effective near-term Band-Aid,” said Matt Kaufler, equity analyst at Clover Capital Management in Rochester, New York.
Investors decided “the sell-off on both sides of the Atlantic was overdone,” he said.
On Wall Street, stocks reversed early losses that had seen the Dow Jones industrial average dip below the psychologically significant 10,000 point level.
The Dow rose 74.36 points, or 0.74%, at 10,142.37. The Standard & Poor’s 500 Index gained 12.92 points, or 1.21%, at 1,084.51. The Nasdaq Composite Index climbed 29.09 points, or 1.32%, at 2,233.10.
The S&P Financial index 2.92% from Thursday’s three-month low, when the index fell nearly 5%.
Shares of Goldman Sachs Group Inc. jumped 5.2% to $143.17 after analysts cited rumors of a possible settlement with US regulators of civil fraud charges.
European shares finished lower.
The FTS Euro first 300 index of top European shares closed down 0.5% at 970.00 points. A late rally in banks pulled the pan-European index off earlier lows, but declines in oil and gas producers helped keep the market in negative territory. BP fell 4.2% after US politicians accused the company of covering up the true extent of the oil spill in the Gulf of Mexico.
MSCI’s All-Country equity index rose 0.67% while MSCI’s emerging market share index rose 0.39%. Both indexes were sharply lower earlier in the global trading day.
In Japan the Nikkei closed down 2.5% and lost 6.5% on the week, its biggest weekly drop in more than a year.
As global share prices cut losses, there was some paring back of money going into European government debt.
The June Bund future shed around half a point from a record high of 128.97. By 1452 GMT, the contract was at 128.56, up 25 ticks on the day.
“The stock market is rallying and so they’re selling back Bunds, we’re just in that mentality at the moment,” said a trader in London.
The premium investors demand to hold Spanish, Italian and Greek sovereign bonds rather than German benchmarks fell. The 10-year Spanish/German government bond yield spread narrowed by 5 basis points from the day’s peak to 143 bps.
US Treasuries dipped narrowly into minus territory after stock market gains tempered the safety bid for US government debt that has dominated trade all week.
The price on benchmark 10-year notes slipped 1/32 of a point. The 10-year note yield rose to 3.22% from 3.21% on Thursday.
Spot gold prices dropped 0.32% or $3.80 an ounce to $1,178.30. US light sweet crude oil fell 55 cents, or 0.78%, to $70.25 per barrel.