* Wall Street rebounds as economic optimism drives markets
* Bonds mixed, housing data tempers optimism over recovery
* Strong German ZEW economic sentiment survey boosts euro
* Oil up slightly up as U.S. refinery fire adds support
(Updates with U.S. markets activity; changes dateline,
previous LONDON)
By Herbert Lash
NEW YORK, May 19 (Reuters) - Investors shrugged off
record-low U.S. housing data on Tuesday and focused on a
perceived recovery in global economies, driving up equity
markets worldwide and lifting higher-risk currencies.
The dollar slid as improving business sentiment in Germany
spurred renewed optimism about the global economy, reducing
demand for safe-haven assets such as the U.S. currency.
Prices for U.S. Treasury debt were mixed as investors
warmed to riskier assets like stocks and as talk swirled that
some U.S. banks were preparing to repay the government for
bailout funds.
Ten-year euro zone government bond prices fell to a
one-week low while the yield on ultra-long-dated German Bunds
moved to a six-month high, pressured by buoyant bourses and
heavy government bond issuance.
To be sure, gains in U.S. and European stock markets were
limited by data that showed both groundbreaking for new U.S.
homes and building permits fell in April to their lowest levels
since records for the data were first collected almost 50 years
ago. For full story, see []
"The market is inclined to be more optimistic than
pessimistic despite the fall in U.S. housing starts, and that's
why we're seeing euro/dollar hold its gains," said Nick
Bennenbroek, head of FX strategy at Wells Fargo in New York.
"There are positive signs we're seeing in the economy
although the housing starts are a reminder of the still
difficult situation."
At 1:30 p.m. EDT (1730 GMT), the Dow Jones industrial
average <> added 28.51 points, or 0.34 percent, at
8,532.59. The Standard & Poor's 500 Index <.SPX> gained 5.27
points, or 0.58 percent, at 914.98. The Nasdaq Composite Index
<> rose 12.05 points, or 0.70 percent, at 1,744.41.
Shares of U.S. homebuilders initially fell, but as U.S.
stocks rebounded after opening lower, the Dow Jones home
construction index <.DJUSHB> also bounced back, moving up 0.50
percent, helped by Monday's data that showed rising sentiment
for those shares.
While the headline numbers for the U.S. housing data were
negative, driven down by a plunge in multifamily units, some
stabilization in single-family construction could be seen, said
Anna Piretti, a senior economist at BNP Paribas in New York.
"If you look at the breakdown, we're beginning to see some
stabilization in the single-family starts," Piretti said. "We
have probably reached a bottom and we should begin to see some
signs of improvement in the second half of the year."
Markets were also bolstered as the cost of borrowing
dollars between banks plumbed lifetime lows and a key credit
spread narrowed to its tightest in over a year, reflecting a
return of confidence in money markets nurtured by central
banks.
"It's becoming much easier to borrow cash, thanks to many
programs, quantitative easing, Fed programs," said David
Keeble, head of interest rate strategy at Calyon in London.
The record low Libor rates drove the two-year U.S. swap
spread to 36 basis points, its narrowest since late February
2007, before the start of the global credit crisis. The tight
spread suggests a gradual healing in credit markets.
European shares rose to their highest close in more than
four months, driven by optimism about a financial sector
recovery.
Also lifting regional shares was a closely watched ZEW
survey showed German investor sentiment rose to its highest
level in nearly three years, underscoring various surveys
showing improvement in investor morale. []
"There is a very strong conviction now that recovery lies
ahead and that earnings are going to come through and it is not
going to budge until there is some real disappointing news
flow," said Mike Lenhoff, strategist at Brewin Dolphin.
The FTSEurofirst 300 <> index of top European shares
rose 1.2 percent to close at 872.09 points, its highest close
since Jan. 7.
Oil prices rose on buying inspired by gains on Wall Street
and a flurry of U.S. refinery problems leading into peak summer
driving season.
Commodities markets have closely tracked the stock market
in recent months as dealers seek signs of economic health.
A fire broke out at part of Flint Hills Resources' 288,126
barrel a day Corpus Christi, Texas refinery, local police said.
[]
U.S. light sweet crude oil <CLc1> rose 32 cents to $59.35 a
barrel.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 1/32 in price to yield 3.24 percent. The 2-year U.S.
Treasury note <US2YT=RR> rose 1/32 to yield 0.89 percent.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> off 0.40 percent at 82.209.
Against the yen, the dollar <JPY=> was down 0.14 percent at
96.11.
The euro <EUR=> rose 0.38 percent at $1.3606.
Gold was firmer in Europe as an unexpected fall in U.S.
housing starts to record lows in April sharpened risk aversion,
supporting the metal's appeal as a safe store of value.
Spot gold prices <XAU=> rose $8.15 to $925.35 an ounce.
Asian shares climbed to their highest level in seven months
on fresh hopes the global recession is easing. The MSCI index
of Asian stocks outside Japan <.MIAPJ0000PUS> rose 3 percent to
its highest since October, while Japan's benchmark Nikkei
average <> closed up 2.8 percent.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting. For the MacroScope
Blog click on http://blogs.reuters.com/macroscope. For Hedge
Fund Blog click on http://blogs.reuters.com/hedgehub)
