World stocks hit three-year high as Fed to keep rates near zero
World stocks surged to a three-year high yesterday and the US dollar eased against the euro as investors bet the Federal Reserve will keep its easy monetary policy in place at its meeting this week.
US government debt prices rose before the auction of $35bn in two-year notes later in the session and ahead of a highly anticipated news conference by Fed chairman Ben Bernanke today.
Investors are focused on the US central bank's first scheduled briefing with reporters in its 97-year history, which will cap the end of a two-day meeting of the policy-setting Federal Open Market Committee.
US Treasuries gained support on expectations the Fed will leave interest rates near zero, fostering a friendly climate to own bonds at least in the near term.
"Investors are unlikely to learn from Bernanke when the Fed will tighten as it is doubtful that he himself knows," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
MSCI's all-country world index rose about 0.6pc, standing at a new 2011 peak and close to a three-year high. The InterContinental Exchange's US dollar index, a basket of major currencies, was down 0.19pc at 73.845, while the euro was up 0.34pc at $1.4628.
Wall Street rallied after solid earnings from Ford, 3M and United Parcel Service, and on a survey of consumer confidence that topped analysts' forecasts and showed inflation expectations eased somewhat in April.
Both the benchmark Standard & Poor's 500 index and the Dow Jones industrial average set new intra-day highs for 2011, climbing to near three-year peaks. The S&P 500 is up about 7pc for the year.
US corporate earnings have been generally strong so far this season, with around three-quarters of S&P 500 index companies beating analysts' forecasts, helping lift the Dow industrials up to near three-year highs.
Crude oil rebounded slightly, while silver and gold tumbled after pushing to new highs in the case of gold on Monday.
Silver was set for its largest one-day fall in six weeks after having hit fresh 31-year highs, while gold came under pressure from investor uncertainty over the likely course of US monetary policy.
Spot silver ceded nearly 5pc to $44.61 an ounce at one point, after surging on Monday to within 17 cents of the record $49.48 hit in January 1980.
Gold hit a record high of $1,518.10 a troy ounce on Monday but slipped to just below $1,500.
"The rally has been strong. It's not surprising to see profit-taking ahead of the Federal Open Market Committee meeting," said Peter Fertig, a consultant at Quantitative Commodity Research. (Bloomberg)