New York: World shares climbed on Wednesday as Spain outlined measures to cut its deficit, easing fears that the Greek debt crisis could spread in Europe, but doubts about the longer term drove down the euro and sent gold to record levels.
MSCI’s all-country world stock index climbed nearly 0.9%, led by Europe, where the FTSEurofirst 300 index gained 1.3%.
“It is quite interesting that Spain has now followed through to cut its budget deficit. I guess the view is if Greece can do it then so can we. That sort of contagion is positive for the markets.” said Mike Lenhoff, chief strategist at Brewin Dolphin.
Concerns that a debt crisis in Greece could spill over to other eurozone nations with high borrowings eased on Wednesday as Spanish Prime Minister Jose Luis Rodriguez Zapatero said Madrid would slash civil service pay by 5% this year, freeze it in 2011 and cut 13,000 public sector jobs.
“There are certainly those people who will see the steps taken in Europe as a replay of the type of steps taken in the United States following the Lehman collapse,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York. “Ultimately that proved to be successful in the short run for markets.”
Doubts about the longer term prospects for debt-laden European countries, however, persisted, and worries about eurozone growth also cast a cloud.
Gold hit a record high on a flight-to-safety bid, touching a new high of $1,244.45, which marked a nearly 20% gain since February. Spot gold rose $9.30, or 0.75%, to $1,241.30.
The Dow Jones industrial average gained 108.75 points, or 1.01%, to 10,857.01. The Standard & Poor’s 500 Index rose 10.79 points, or 0.93%, to 1,166.58 and the Nasdaq Composite Index climbed 34.52 points, or 1.45%, to 2,409.83.
The rise in the price of gold drove up materials shares. The PHLX gold and silver index rose 1.5%. Freeport-McMoRan Copper and Gold Inc rising 2.8% to $72.17.
Technology and industrial shares also rose.
As investors shift attention from Europe’s sovereign debt troubles, the focus will return to the US economic recovery, though analysts predict choppy trading.
“The market has been increasingly conditioned to buy on the dips now that the situation in Europe has been not resolved but certainly stabilized in the short term,” said Craig Peckham, equity trading strategist at Jefferies & Co in New York.
Euro sheds gain
The pan-European FTSEurofirst 300 index of top shares closed up 1.3% at 1,048.56 points. The index is now up 0.3% for the year having dipped into negative territory in early May on eurozone sovereign debt concerns.
Financials were among the top gainers.
The euro declined 0.09% at $1.2642. The battered currency rose earlier after Spain announced its austerity measures and data showed the eurozone economy grew modestly in the first quarter.
Germany’s GDP grew for the fourth quarter in a row in the first three months of 2010, data showed on Wednesday.
Gains in the euro were short-lived as investors remain worried about whether weaker eurozone economies can deliver debt cuts and the draining impact of austerity measures on Europe’s growth.
The dollar rose against a basket of major trading-partner currencies, with the US Dollar Index up 0.29% at 84.712. Against the Japanese yen, the dollar was up 0.28% at 92.94 yen.
US Treasuries prices fell as the eurozone’s attempts to stanch its budget crisis helped stabilize stock markets and traders braced for a 10-year bond auction.
Investors must absorb $78 billion of US Treasury bonds in auctions this week, including $24 billion of 10-year notes on Wednesday. Ten-year Treasury note yields rose 0.04 percentage point to 3.57%.
“People like to see that fiscal responsibility talk coming out of Europe, but I think it’s more that we’re watching equities and they’re stable and we have a lot of supply,” said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.
In energy and commodities, US light sweet crude oil fell 90 cents, or 1.18%, to $75.47 per barrel.
Across Europe, the FTSE 100 index was up 0.9% as Conservative leader David Cameron took up the position of Prime Minister, at the head of a coalition government.
Germany’s DAX was 2.4% higher and France’s CAC 40 rose 1.1%.