Stocks end up 3 quarters in row; commodities jump

By Barani Krishnan

NEW YORK (Reuters) – Stocks on major world markets posted a third straight quarter of gains on Thursday and commodity prices also surged, feeding inflationary pressure that could boost equities further.

Global stocks, as measured by the MSCI All-Country World Index (.MIWD00000PUS: Quote, Profile, Research), finished the day up 0.03 percent after hitting a three-week high earlier. It rose 3.9 percent in the first quarter, after the 22 percent gained in two previous quarters.

On Wall Street, the Dow Jones industrial average closed down 0.23 percent. But it ended the quarter up 6.4 percent, adding to the 18 percent rise in the previous six months.

In currency markets, the euro notched a quarterly gain of 5.9 percent against the dollar — its first gain in two quarters — as the European Central Bank stuck to a plan to raise interest rates despite the financial mess in eurozone countries such as Ireland, Portugal and Greece.

In commodities trading, prices of wheat, corn and soybeans — raw materials for bread, syrup and animal feed — rose as much as 5.0 percent each on Thursday. They shot up after a U.S. government report showing stockpiles of grains at much lower levels than expected.

Oil prices rose as Middle Eastern protests and Libya’s conflict kept threats to supply in focus.

U.S. crude oil finished up 2.4 percent at $106.72 a barrel, a 2-1/2 year high. Brent crude ended up 1.9 percent on the day, and 24 percent for the quarter, the period’s best-performing major asset.

Analysts said they expected price pressure from such commodities to channel into equities and boost shares of natural resource producers.

“To see another couple of percent moves in stocks going into the end of the second quarter will not surprise us at all,” said Oliver Pursche, president of Gary Goldberg Financial Services, which manages over $500 million in Suffern, New York.

“We think commodity-related stocks such as Mosaic (MOS.N: Quote, Profile, Research), Cliff Natural Resources (CLF.N: Quote, Profile, Research) and Deere (DE.N: Quote, Profile, Research) will particularly do well, although we could see more market volatility as the QE2 nears its June expiry,” Pursche said, referring to the Federal Reserve’s $600 billion stimulus effort.

Despite strong quarterly gains, Wall Street has recorded some of the year’s lightest trading over the last week as investors played it safe by riding on winning stocks. The latest session saw investors reluctant to make big bets before Friday’s monthly employment report.

The Dow Jones industrial average (.DJI: Quote, Profile, Research) ended down 30.88 points, or 0.25 percent, at 12,319.73. The Standard & Poor’s 500 Index (.SPX: Quote, Profile, Research) lost 2.43 points, or 0.18 percent, at 1,325.83. The Nasdaq Composite Index (.IXIC: Quote, Profile, Research) was up 4.28 points, or 0.15 percent, at 2,781.07.

The Russell small-cap index (.SML: Quote, Profile, Research) ended at a record high, after gaining 0.5 percent on the day and 7.4 percent for the quarter.

“I think at this point, the market deserves the bullish benefit of the doubt,” said Adam Sarhan at New York-based financial advisory Sarhan Capital.

“You have a nuclear threat in Japan, instability in oil-producing countries, debt panic in Ireland and other periphery countries in Europe. Yet the market doesn’t come down.”

ECB MULLS RATE HIKE

The euro rose on expectations the ECB will raise interest rates in April to curb inflation, despite the region’s festering debt crisis.

The yield premium investors demanded to hold Portuguese bonds rather than benchmark German bonds rose to 508 basis points, 12 bps wider on the day, as the country’s 10-year yields hit 8.476 percent.

Portugal’s budget deficit reached 8.6 percent of gross domestic product in 2010, above a target of 7.3 percent agreed with the EU.

The euro traded above 1.416 to the dollar by 4:24 p.m. EDT (2024 GMT), paring gains after comments by a regional Federal Reserve president indicating a possible U.S. rate hike later in the year.

Minneapolis Fed President Narayana Kocherlakota said U.S. short-term interest rates may need to rise 75 basis points in late 2011.

The yen fell to a 10-month low of 117.90 versus the euro and hit a three-week trough of 83.21 against the U.S. dollar as expectations grew that Japan would lag the euro zone and U.S. central banks in raising rates. So far this year, the euro has risen nearly 8.0 percent against the yen.

In the bond market, U.S. Treasuries prices initially rose after data showing weekly jobless claims fell less than expected. There were also some flight-to-safety bid as Portuguese government bond yields rose.

But by the end of the day, prices finished lower.

(Additional reporting by Ellen Freilich and Caroline Valetkevitch in New York; and Dominic Lau in London; Editing by Kenneth Barry and Dan Grebler)

Stocks end up 3 quarters in row; commodities jump