New York: Wall Street’s rally on upbeat jobs data fizzled on Thursday but European shares closed at a 10-day high and the euro hit a two-week peak after the first details surrounding Europe’s bank stress tests emerged.
Clarity on European bank stress tests heartened investors who saw criteria for the checks were no worse than markets expected.
An improvement in Australia’s employment market kick-started the move to higher-risk assets and away from the safe-haven greenback. For similar reasons, gold eased below $1,200 an ounce and benchmark 10-year US Treasuries fell.
Risk appetite was also bolstered after weekly first-time US jobless claims dropped to their lowest level in two months, offering a ray of hope for economic recovery.
“The euro continued to be supported by the overall elevated level of risk appetite,” said Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington D.C.
“That got a little bit of a boost from this morning’s positive initial jobless claims data.”
The euro rose as high as $1.2700, its highest since mid-May, according to Reuters data.
In midday New York trade, the Dow Jones industrial average rose 44.20 points, or 0.44%, to 10,062.48. The Standard & Poor’s 500 Index gained 2.38 points, or 0.22%, to 1,062.65. The Nasdaq Composite Index climbed 0.88 points, or 0.04%, to 2,160.35.
Declines in chipmaker shares cut into optimism over drop in claims for jobless benefits and strong June sales for some top retailers.
The drop in semiconductor helped cap the market’s earlier gains. Micron Technology fell 3.5% to $8.58 and the PHLX semiconductor index fell 1.6% after a more than 5% gain Wednesday.
“Chipmakers are very sensitive to US consumer demand, so you may be seeing some reaction to sales not being great,” said John Canally investment strategist at LPL Financial in Boston.
Wall Street on Wednesday posted its best one-day advance in about six weeks, after a strong earnings outlook from State Street Corp bolstered hopes for the upcoming earnings season.
According to Thomson Reuters data, quarterly earnings of S&P 500 companies are expected to rise 27.1% in the second quarter after surging 58.3% in the first period.
Both the Nasdaq and S&P briefly hit negative territory before rising again.
US retailers gave a mixed picture as monthly chain store sales rose, boosted by promotions. The S&P retail index fell 0.84%.
European shares closed higher, led by bank stocks. The FTSEurofirst 300 index of top European shares closed up 0.95% at 1,015.56 points, the highest close since late June. Thursday marked the third straight day of of gains after falling more than 7% in the previous two calendar weeks.
Financial stocks were among the top gainers, with STOXX Europe 600 banking index rising 1.5%.
The MSCI world equity index rose 0.7% to a 1-1/2 week high. The Thomson Reuters global stock index also rose 0.7%.
In Japan, the Nikkei ended up 2.8%, buoyed by short-covering from investors who believe the benchmark’s slide to a seven-month low this week was overdone.
Europe named 91 banks taking part in a test into the health of its banking system on Wednesday — including many regional banks where markets suspect most of the sore spots reside — as it seeks to restore confidence in the sector.
European Central Bank President Jean-Claude Trichet said appropriate action would be taken where needed on bank balance sheets. He spoke after the ECB bank left interest rates on hold at a record low 1.0%.
Trichet said the global economy and foreign trade may recover more strongly than projected, further supporting euro zone exports. The area’s economy, however, is expected to grow “at a moderate and still uneven pace in an environment of high uncertainty,” he said.
The euro rose 0.19% to $1.2658, extending a strong run after hitting a four-year low of $1.1876 in early June. The greenback gained 0.76% at ¥88.37.
The Australian dollar gained about 1.6% on the day against the US dollar to $0.8782.
The International Monetary Fund raised its US growth forecast slightly to 3.3% for 2010 and 2.9% for 2011, but said unemployment would remain above 9% for both years and inflation would remain low.
The IMF also sees the greenback depreciating moderately over the next five years.
Benchmark 10-year US Treasuries fell 9/32 of a point in price pushing the yield to 3.02%.
“It’s a low, low-yielding world,” said Richard Gordon, fixed-income strategist at Wells Fargo Securities in Charlotte, North Carolina. “Slow growth is being priced in and there’s no inflationary pressure right now.”
The two-year German government bond yield climbed to 0.733%, reaching highs not seen since the end of April.
Spot gold fell 0.47% to $1,196.20 while crude oil traded up 1.31% to $75.04 a barrel.