* MSCI world equity index up 2.2 percent
* European stocks gains 2.5 pct
* Dollar broadly weaker
(Updates to U.S. markets, changes byline, dateline, previous
LONDON)
By Al Yoon and Jeremy Gaunt
NEW YORK/LONDON, July 6 (Reuters) - World stocks posted
their biggest gains in a month on Tuesday amid optimism thatEuropean banks would weather strength tests and on growth in
the U.S. service sector, while the U.S. dollar fell on a shift
to risky assets.
MSCI's all-country world stock index <.MIWD00000PUS> jumped
2.2 percent, and U.S. markets advanced in anticipation of a $22
billion initial public offering by the Agricultural Bank of
China.
The IPO, which could set an all-time record, is seen as a
key test of investor sentiment, compromised in recent weeks by
persistent fears the world's economic recovery is stalling.
Relieving concerns about the health of French banks,
Christian Noyer, European Central Bank Governing Council
member, said the sector is likely to pass Europe-wide stress
tests later this month. His comments followed similar remarks
from the French economy minister. For details, see
[]
"There appears to be a decent bounce here based on a couple
of risk-positive data points," said Craig Peckham, equity
trading strategist at Jefferies & Co in New York.
Still, Peckham did not call an end to the selling that has
pummeled the S&P 500 index in the last two months.
In New York, the Dow Jones industrial average <> gained
132.41 points, or 1.37 percent, to 9,818.89. The Standard &
Poor's 500 Index <.SPX> gained 15.47 points, or 1.51 percent,
to 1,038.05. The Nasdaq Composite Index <> gained 35.14
points, or 1.68 percent, to 2,126.93.
The FTSEurofirst 300 <> gained 2.5 percent, bouncing
back from six-week closing lows, led by mining shares, while
Japan's Nikkei <> closed up nearly 1 percent, coming off a
seven-week low.
Emerging market stocks <.MSCIEF> jumped 2 percent.
"Markets are a bit oversold. The decline has been quite
strong," said Joost de Graaf, senior portfolio manager at
Kempen Capital Management in The Netherlands.
"There are (also) hopes that second-quarter earnings will
be OK and will lift some of the negative atmosphere."
The MSCI world index is still down nearly 10 percent for
the year. World stocks weakened Monday, though U.S. markets
were closed due to the U.S. Independence Day holiday.
Investors have been concerned the global economic recovery
is slowing enough to send some countries into a double-dip
recession.
The S&P 500 fell every day last week and has declined 8.3
percent since the beginning of the year. Signs of weakness in
the labor and housing markets as well as a potential slowdown
in manufacturing have sparked worries.
On Tuesday, the Institute for Supply Management, a U.S.
business group, said its index of non-manufacturing activity
grew in June for a sixth straight month but the rate of growth
slowed more than expected.
A slew of brokerage upgrades helped U.S. shares. Goldman
Sachs Group Inc <GS.N> rose 1.8 percent to $133.35, following
an upgrade to "overweight" by JPMorgan.
DOLLAR HIT
The more risk-friendly mood hit the dollar, which fell
nearly 1 percent against a basket of major trading partner
currencies. <.DXY>
The Australian dollar rallied after the Reserve Bank of
Australia (RBA) offered an upbeat assessment of the global
economy, spurring appetite for high-yielding currencies, while
rising risk demand also boosted the euro.
The RBA held its key interest rate at 4.5 percent, saying
the policy was appropriate, given caution in global markets,
and said it remained optimistic about the outlook for Asia and
the domestic economy. []
Relief over the central bank's position calmed investors
and boosted global risk appetite, prompting an unwinding of
short positions in currencies such as the euro.
"There's been a gradual return of risk appetite," said
Ulrich Leuchtmann, currency strategist at Commerzbank in
Frankfurt.
The euro <EUR=> rose 0.76 percent at $1.2634. Against the
Japanese yen, the dollar <JPY=> declined 0.15 percent to
87.61.
Government bond demand softened against the rise in
equities. Yields on benchmark 10-year U.S. Treasury notes were
little changed at 2.98 percent.
In commodities, U.S. light sweet crude oil <CLc1> rose 1.8
percent to $73.46 per barrel, while spot gold <XAU=> fell 1.25
percent to $1192.90 an ounce.
(Additional reporting by Edward Krudy and Vivianne Rodrigues
in New York and Naomi Tajitsu in London; editing by Jeffrey
Benkoe)
