* Only seven European banks fail stress tests
* Analysts question credibility of tests
* Global stocks gain, Nasdaq erases 2010 losses
* Euro recovers late in the session, still fragile
(Updates to U.S. markets' close)
By Walter Brandimarte
NEW YORK, July 23 (Reuters) - Global stocks rose on Friday
on solid corporate earnings while the euro gained against the
dollar after fewer-than-expected European banks failed stress
tests.
Safe-haven assets such as gold and U.S. Treasuries dropped
after European regulators reported that only seven of 91 banks
failed the tests, which were designed to show the impact of
Europe's sovereign debt crisis on its financial institutions.
The market recovery seemed fragile, however. Some analysts
questioned the credibility of the tests after regulators
revealed they were applied only to the bank's trading books --
not their banking books.
Under the worst stress scenario, the seven weaker banks --
five of them from Spain -- would face a capital shortfall of
3.5 billion euros ($4.5 billion). For details, see
[].
"The market expectation was that you were going to have
about 10 bank failures -- two from Germany, one from Greece
and about six from Spain -- and capital shortfalls totaling at
least 100 billion euros," said Cary Leahey, an economist at
Decision Economics in New York.
A larger number of failures, Leahey added, would have
added credibility to the tests.
Other analysts bet the positive results will calm down
investors and let them focus on some recent positive economic
and corporate data.
"Despite questions about transparency and how the Euro
stress tests don't measure up to the U.S. tests last year, I
think these tests will start to put these Euro-zone concerns
behind us," said Chris Rupkey, chief financial economist with
the Bank of Tokyo-Mitsubishi in New York.
Investors' optimism increased following solid
second-quarter results from major U.S. companies, including
Microsoft and Ford. Data showing Germany's business sentiment
jumped in July to its highest level in three years also
supported markets. [] []
[]
World stocks measured by the MSCI All-Country World Index
<.MIWD00000PUS> advanced 0.69 percent in late trading on
Friday.
Before the stress test results were announced, the
FTSEurofirst 300 <> index of top European shares rose
0.48 percent to close at 1,044.31.
On Wall Street, each of the three major U.S. stock indexes
finished Friday's session about 1 percent higher with the
Nasdaq edging back into the black for the year. At the close,
the Nasdaq had erased its 2010 losses.
In early afternoon, the Dow industrials briefly turned
positive for the year and then gave up some of those gains.
The Dow Jones industrial average <> climbed 102.32
points, or 0.99 percent, to end at 10,424.62 -- just about 4
points shy of its close at the end of 2009. The Standard &
Poor's 500 Index <.SPX> rose 8.99 points, or 0.82 percent, to
finish at 1,102.66 -- or about 13 points below its year-end
2009 close.
The Nasdaq Composite Index <> gained 23.58 points, or
1.05 percent, to close at 2,269.47.
Shares of General Electric Co <GE.N> climbed 3.29 percent
to $15.71 after the company raised its dividend by 20 percent
and resumed a share-buyback program it had halted in
September, 2008. []
Shares of Microsoft <MSFT.O> dipped 0.12 percent to close
at $25.81 even after the company's stronger-than-expected
results. Ford's stock <F.N> jumped 5.2 percent to $12.72.
EURO REBOUNDS
The euro gained 0.19 percent to $1.2913 late in the
afternoon, after a very volatile session. Initially, the euro
had fallen as the results of the stress tests came out.
Investors remained cautious however, taking the results of
the stress tests with a grain of salt.
"There's definitely suspicion out there about these tests,
but the euro is coming off a very good week, thanks to solid
economic data, and that's lending support," said Brian Dolan,
chief strategist at Forex.com in Bedminster, New Jersey.
Against the Japanese yen <JPY=>, the greenback gained 0.54
percent to 87.38.
The dollar, which had lured investors earlier in the
session with its safe-haven appeal, gave up some of those
gains against a basket of major currencies late in the
afternoon. By the end of the day, the U.S. Dollar Index <.DXY>
was down 0.10 percent at 82.516 -- off its session high at
83.028.
U.S. crude oil futures <CLc1> fell 32 cents, or 0.4
percent, to settle at $78.98 a barrel. Earlier, U.S. oil
futures reached an 11-week high at $79.60. Oil's decline from
that high tracked the release of the stress test results, but
the market found support in the temporary loss of some Gulf of
Mexico oil production as Tropical Storm Bonnie made its way
across south Florida.
As stocks gained, the 10-year U.S. Treasury note
<US10YT=RR> fell 17/32 in price, with the yield rising to 3
percent.
U.S. August gold futures <GCQ0> fell $7.80 to settle at
$1,187.80 an ounce as global risk aversion declined.
(Additional reporting by Ellen Freilich, Rodrigo Campos,
Steven C. Johnson and Richard Leong in New York; Editing by
Jan Paschal)
