* World stocks gain as Obama speech bolsters sentiment
* Euro hits 2-month high of $1.3723 before paring gains
* Treasuries widen losses on jump in new U.S. home sales
* U.S. crude prices hold above $86 a barrel
(Updates with close of European markets)
By Herbert Lash
NEW YORK, Jan 26 (Reuters) - World stocks and crude oil
rose on Wednesday after U.S. President Barack Obama's pledge to
trim deficit spending added to optimism that the Federal
Reserve will retain its stimulative monetary policy.
None expect the Fed to alter its benchmark interest rate at
the end of a two-day meeting of policymakers on Wednesday, but
investors hope the focus will remain on supporting economic
growth with $600 billion in purchases of government debt. For
details see []
Obama's annual State of the Union speech Tuesday helped
bolster sentiment as the president signaled corporate tax cuts,
a retooling of the tax code and an end to pet spending projects
coveted by many lawmakers. []
European equities hit a one-week closing high and the
iconic Dow Jones industrial average rose above the 12,000 level
for the first time since June 2008 before paring gains to trade
at breakeven.
But the broad Standard & Poor's 500 Index and world stocks
rose, with MSCI's all-country world index <.MIWD00000PUS> up
almost 0.5 percent.
In Europe, the pan-regional FTSEurofirst 300 <> index
of top shares finished 0.8 percent firmer at 1,152.71 points,
the highest close since hitting a 28-month peak on Jan. 18.
"Obama is trying to convey his hopes that the health of
corporate America is important," said Keith Bowman, equity
analyst at Hargreaves Lansdown in London. "He would like to
simplify the tax system and keep corporate tax rates low. That
has been taken well by investors."
Data that showed new U.S. single-family home sales surged
to their highest level in eight months in December while prices
were the highest since April 2008 also bolstered sentiment and
raised cautious optimism for a housing market recovery.
[]
Investors were unfazed by a report from the Congressional
Budget Office, which said the U.S. budget deficit in 2011 will
jump nearly 40 percent over prior forecasts, mostly due to the
mammoth tax-cut package brokered by Obama and lawmakers in
December. []
Wall Street stock gains were limited by Boeing Co <BA.N>,
whose shares fell 3.4 percent after the planemaker gave a
weaker-than-expected outlook. [] Boeing dragged on
the Dow.
Shortly before 12:30 p.m. (1730 GMT), the Dow Jones
industrial average <> was up 8.51 points, or 0.07 percent,
at 11,985.70. The Standard & Poor's 500 Index <.SPX> was up
4.70 points, or 0.36 percent, at 1,295.88. The Nasdaq Composite
Index <> was up 16.68 points, or 0.61 percent, at
2,735.93.
Analysts said Fed policymakers are likely to acknowledge a
recent improvement in the U.S. economy, which should supply
support for the U.S. dollar.
"The Fed is expected to keep policy on hold today, leaving
the tone of the statement the major risk," said Sacha Tihanyi,
currency strategist at Scotia Capital in Toronto.
But the dollar was down against major currencies, with the
U.S. Dollar Index <.DXY> off 0.23 percent at 77.826.
The euro <EUR=> was up 0.05 percent at $1.3696, after
sliding as low as $1.3643 <EUR=EBS> on trading platform EBS,
off an earlier two-month high at $1.3723.
U.S. crude held above $86 a barrel and Brent rose more than
$1 as a weaker dollar ahead of the Fed statement and rising
equities countered a big rise in U.S. crude inventories.
[]
U.S. crude briefly turned negative after the U.S. Energy
Information Administration reported a 4.84 million-barrel rise
in crude stocks. Still, some analysts said that was unlikely to
stand in the way of higher prices. []
U.S. crude <CLc1> was up 51 cents at $86.70, while Brent
crude <LCOc1> gained $2.01 to $97.26.
U.S. Treasuries <US10YT=RR> widened losses after a report
showing that new home sales jumped in December.
[]
The U.S. Commerce Department said sales of new
single-family homes rose 17.5 percent in December on a
seasonally adjusted basis to an annualized 329,000.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 20/32 in price to yield 3.41 percent.
German government bond prices fell, weighed by poor demand
at a 30-year Bund auction and a fall in gilt prices after
hawkish Bank of England policy minutes revived some rate hike
bets in the UK. []
Two-year German bonds yielded their most in about 14 months
at 1.334 percent <DE2YT=TWEB>. Prices
Spot gold prices <XAU=> fell $6.20 to $1,327.20 an ounce.
Japan's Nikkei average <> fell 0.5 percent, giving
back some of the previous day's 1 percent rally. The MSCI index
of Asian stocks outside Japan <.MIAPJ00000PUS> rose 0.6
percent.
(Reporting by Rodrigo Campos, Nick Olivari and Ellen Freilich
in New York; Alex Lawler, Emma Farge, Atul Prakash, Jan Harvey,
Pratima Desai and Nia Williams in London; Writing by Herbert
Lash; Editing by Kenneth Barry)
