* Stocks' upward momentum intact for year-end
* Treasuries recover some losses after sell-off
* Dollar weaker against other major currencies
(Updates with U.S. close)
By Al Yoon
NEW YORK, Dec 29 (Reuters) - World stocks climbed to their
highest levels in more than 27 months on Wednesday and the S&P
500 headed for its best December in nearly two decades as
investors seized on indications of stronger economic growth in
2011.
U.S. Treasuries rose after strong demand for an auction of
$29 billion in new U.S. debt provided relief a day after dismal
support for another government note sale. The decline in
Treasuries yields drove the dollar down against a basket of
major currencies <.DXY>, as lower bond yields erode the return
on U.S. assets.
Investors have been turning to riskier assets as 2010 draws
to a close. Views that the world economy is on the mend are
driving expectations that the higher interest rates that
typically follow stronger growth will hurt returns on
government bonds and the other safe-haven assets that drew
favor after the financial crisis erupted.
Asset allocations are seen by many analysts, including some
bond pickers, as favoring stocks in the new year.
"The first few days of the new year will be good as a lot
of new money will flow into the market," said Philippe Gijsels,
head of research at BNP Paribas Fortis Global Markets in
Brussels. "But people will become cautious again."
Much of stocks' gains came after Federal Reserve Chairman
Ben Bernanke made it clear in August that the U.S. central bank
was willing to buy more assets in order to pump liquidity into
the slowing U.S. economy.
The Fed's quantitative easing and tax stimulus measures
have bolstered economic forecasts for 2011.
MSCI's all-country world stock index <.MIWD00000PUS> jumped
1.9 percent, hitting the highest level since Sept. 3, 2008. The
index's emerging market counterpart <.MSCIEF> rose more than 1
percent.
In New York, the Dow Jones industrial average <> rose
9.84 points, or 0.09 percent, to 11,585.38. The Standard &
Poor's 500 Index <.SPX> added 1.27 points, or 0.10 percent, to
1,259.78 and the Nasdaq Composite Index <> edged up 4.05
points, or 0.15 percent, to 2,666.93.
The S&P 500 has risen almost 7 percent this month, pushing
the benchmark index above levels reached on Sept. 12, 2008, the
last trading day before Lehman Brothers collapsed, as improving
economic data and a changed political landscape have encouraged
risk-taking.
Shares of a number of leading consumer-oriented companies
posted solid gains on Wednesday, with McDonald's Corp <MCD.N>
up 1.1 percent to $77.27 and Walt Disney Co <DIS.N> rising 0.9
percent to $37.69. Both companies are Dow components.
"People are hoping that the consumer is back and that will
help fuel the engine and grow some earnings so that companies
will start hiring," said Frank Ingarra, a portfolio manager at
Hennessy Funds in Stamford, Connecticut.
Some analysts, however, remained cautious about the outlook
for stocks, wary that thin volumes over the holiday period may
not be indicative of a trend.
"I don't want to dismiss the recent gains, but I'm not
ready to draw a trend line," said Jack Ablin, chief investment
officer at Harris Private Bank in Chicago. "I'd like to see how
the market responds when we have more participants and tangible
news to sink our teeth into."
The Nasdaq, copper and gold have been the big winners this
year. For a Reuters graphic, see http://r.reuters.com/veq33r
In Europe, the FTSEurofirst 300 <> rose about a
quarter of a percent, extending a year-end rally and putting
equities on track to post their biggest monthly gain in 17
months.
Japan's Nikkei <> gained 0.5 percent.
TREASURIES IN FOCUS
U.S. Treasury notes prices rose on Wednesday. The gains
came after a drubbing on Tuesday, following a weak $35 billion
five-year note auction, boosted value to a point where
investors could feel more comfortable with the drumbeat of debt
sales the government must conduct to fund its deficit.
U.S. bond yields have soared a full percentage point since
October on expectations that growth will accelerate in 2011,
while concerns over the U.S. deficit have raised inflation
fears and sapped demand for the debt. Some investors, including
Jeffrey Gundlach, the chief executive of DoubleLine Capital,
have marked the sell-off as a bond buying opportunity because
much higher yields would work against economic growth.
On Wednesday, the 10-year U.S. Treasury yield declined 0.14
percentage point to 3.35 percent.
In currency trading, the dollar hit a seven-week low and
dropped versus the euro, after Treasury yields tumbled
following the U.S. debt auction.
"The reaction in the bond markets is fairly sharp," said
Vassili Serebriakov, currency strategist at Wells Fargo in New
York. "There's a broader move towards a weaker U.S. currency."
Commodity gains boosted the Australian and New Zealand
dollars, while the euro edged up against the U.S. dollar after
holding above its 200-day moving average.
Most analysts are bracing for more euro weakness in early
2011, but the currency's stubborn refusal to break below the
200-day moving average, now at $1.3084, has frustrated bearish
investors.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> off 0.7 percent at 79.799. Against the yen,
the dollar dropped 1 percent to 81.64 yen <JPY=> . The euro
<EUR=> rose 0.75 percent to $1.3216.
In commodities, U.S. light sweet crude oil <2CLc1> settled
down 37 cents, or 0.4 percent, to $91.12 a barrel. Gold <XAU=>
rose $4.61, or 0.33 percent, to $1410.60.
(Additional reporting by Brian Gorman and Atul Prakash in
London, and Steven C. Johnson, Chuck Mikolajczak and Ryan
Vlastelica in New York; Editing by Leslie Adler; Graphic by
Scott Barber)
