World stocks rise on upbeat U.S. data

By Manuela Badawy and Natsuko Waki

NEW YORK/LONDON (BestGrowthStock) – World stocks turned positive and the euro rose to session highs on Tuesday after robust U.S. manufacturing data lifted confidence in global economic recovery.

Stocks rose on Wall Street after U.S. construction spending recorded its largest monthly rise in nearly 10 years. European stocks (.FTEU3: ) pared losses and rose 0.1 percent after a closely watched U.S. index on manufacturing activity declined less than expected. Oil was 0.9 percent higher at $74.84 a barrel.

“While this is a positive, I wouldn’t regard this as being too significant to macro economic news or financial markets,” said Howard Simons, strategist at Bianco Research in Chicago.

“We need to be looking at factors related to the withdrawal of the government stimulus, such as housing and the financial instruments linked to housing. Aside from that, these days I wake up and want to know if some event occurred overseas or something along those lines; we’re very event-driven at the moment.”

May was the most volatile month of trading since the aftermath of Lehman Brothers’ collapse in late 2008 and investors are concerned growth could slow in the euro zone as it struggles to rein in debt. That could reduce demand for exports from economies like China, slowing production there.

U.S. government bond prices pared gains after the Institute for Supply Management said the U.S. manufacturing sector expanded for a tenth straight month but at a slower pace than in April, which was the highest in almost six years. Meanwhile employment rose to its best level in six years, according to an industry report.

The Dow Jones industrial average (.DJI: ) was up 56.23 points, or 0.55 percent, at 10,192.86. The Standard & Poor’s 500 Index (.SPX: ) was up 3.63 points, or 0.33 percent, at 1,093.04. The Nasdaq Composite Index (.IXIC: ) was up 15.69 points, or 0.70 percent, at 2,272.73.

MSCI world equity index (.MIWD00000PUS: ) rose 0.1 percent. The index has lost nearly 10 percent since April, putting it on track for its biggest quarterly loss since March 2009. BP (BP.L: ) dragged on the European stock index (Read more about the euro currency recovery. ) earlier in the day by losing more than 15 percent after its attempt to plug the worst oil spill in U.S. history in the Gulf of Mexico failed.

The euro rose to session highs at $1.2353 after having fallen to a 4-year low against the dollar, down 1.4 percent to $1.2112, its lowest since April 2006 on signs the euro zone’s debt crisis is spreading to its banking system. The dollar rose to its highest in 15 months against a basket of major currencies.

Worries over another crisis in the banking sector were compounded by data signaling slowing manufacturing growth in Europe and China. In the United States, stronger factory activity due to overseas demand and inventory restocking has helped lead an economic rebound over the past three quarters.

A survey showed manufacturing activity in the euro zone expanded in May at a considerably more sluggish pace than in April. Separate data showed the pace of China’s factory output eased last month.

China’s PMI, an indicator of factory activity, compiled by the China Federation of Logistics and Purchasing, fell to 53.9 in May from 55.7 in April, close to analysts forecasts of 54.0.

However, it stood above the threshold of 50 that separates expansion from contraction for the 15th consecutive month.

“The figures point to slower economic growth toward the end of this year,” said Eugen Weinberg, commodities analyst at Commerzbank in Frankfurt. “The fear is that Chinese officials will tighten monetary policy and this will also dampen growth.”

In addition, the European Central Bank warned euro zone banks faced up to 195 billion euros in a “second wave” of potential loan losses over the next 18 months due to the financial crisis, and said it had increased purchases of euro zone government bonds.

“The ECB warning on Monday set the stage for euro selling,” said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

The euro was down 0.57 percent at $1.2235. Against the Japanese yen, the dollar was up 0.15 percent at 91.38 from a previous session close of 91.240.

The benchmark 10-year U.S. Treasury note was up 3/32, with the yield at 3.2903 percent. The 2-year U.S. Treasury note was unchanged with the yield at 0.7619 percent. The 30-year U.S. Treasury bond was up 8/32, with the yield at 4.2016 percent.

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(Additional reporting by Christopher Johnson, Vivianne Rodrigues, Richard Leong; Editing by Andrew Hay)

World stocks rise on upbeat U.S. data