(Updates to U.S. late afternoon, changes byline)
By Cal Mankowski
NEW YORK, Jan 10 (Reuters) - U.S. stocks continued to
recover from a poor start to the year on Thursday, helped by
assurances of further interest rate cuts by the Federal
Reserve, though European stocks ended lower after the European
Central Bank held rates at its latest meeting.
The promise of further U.S. interest rates cuts undermined
the U.S. dollar, helping to push gold prices to a new record
near $900 an ounce.
The Federal Reserve was "ready to take substantive
additional action as needed to support growth and to provide
adquate insurance against downside risks," Fed chairman
Bernanke said in a speech on Thursday.
"This is what the markets were hoping he would say," said
Steve Goldman, analyst at Weeden & Co. in Greenwich,
Connecticut.
U.S. equities were also helped by news Bank of America
<BAC.N> is in talks to buy struggling mortgage lender
Countrywide Financial Corp <CFC.N>, the largest U.S. home
mortgage lender which denied rumors of bankruptcy earlier this
week.
"A Bank of America deal for Countrywide gives people
confidence that maybe the financials are not as toxic as people
think if Bank of America sees value there," said Edward
Bretschger, director, equity sales and trading, at Calyon
Securities in New York.
The Dow Jones industrial average <> ended up 0.90
percent at 12,849.35. The Standard & Poor's 500 Index <.SPX>
was up 0.76 percent at 1,419.78. The Nasdaq Composite Index
<> ended up 0.56 percent at 2,488.52.
However, European shares lost more ground on Thursday to
hit their lowest point so far this year after the European
Central Bank held interest rates unchanged and indicated it was
willing to even raise interest rates to counter inflation.
The Bank of England also left interest rates unchanged at
its meeting on Thursday.
"(ECB president) Trichet is still sounding very hawkish
judging by his warnings of higher inflation and his threat that
the ECB would be prepared to act pre-emptively to cap any
further inflation pressure," Bear Stearns said in a note.
The FTSEurofirst 300 <> index of top European shares
lost 0.85 percent to close at 1,436.77 points.
Earlier Japanese stocks slid to an 18-month closing low,
dragged down fears of a slowdown in the U.S. economy which may
hurt Japanese growth.
The benchmark Nikkei <> closed down 1.45 percent at
14,388.11, its lowest close since June 2006.
According to Morgan Stanley's main world stock index
<.MIWD00000PUS> global equities were up 0.32 percent at 390.25,
after seeing a four month low on Wednesday.
In emerging markets though, stocks ended down 0.28 percent
at 1,223.99 according to the investment bank's emerging markets
equities index <.MSCIEF>.
DEBT MARKETS MIXED
In world debt markets, U.S. short-dated Treasury yields
fell after Federal Reserve Chairman Ben Bernanke's remarks
solidified expectations for interest rate cuts at the Fed's
next meeting on January 30th.
But long-dated Treasury yields rose on the perception that
the Fed is shifting its focus to supporting near-term growth
rather than curbing long-run inflation.
The U.S. Treasury two year note yield <US2YT=RR> slipped to
2.67 percent, the lowest level since March 2004.
The 10-year U.S. Treasury yield <US10YT=RR> edged up to
3.84 percent.
Euro zone government bonds ended Thursday largely unchanged
after the European Central Bank left interest rates on hold at
4.0 percent.
Earlier Japanese government bond yields fell on fears of a
U.S. recession affecting the Japanese economy.
U.S. DOLLAR SLIDE BOOSTS GOLD TO NEW RECORD
The U.S. dollar fell sharply after the Federal Reserve
Chairman's comments.
"It's definitely dollar-negative and confirms the market's
view that we're going to get 50 basis points of rate cuts in
January," said David Powell, currency strategist at IDEAglobal
in New York.
In late New York trade the euro <EUR=> was up at $1.4799,
while the yen slipped with the U.S. dollar quoted around 109.43
yen <JPY=>.
Gold prices jumped to a new record at $894.90 <.XAU=> as
the U.S. dollar fell.
Crude oil prices also continued their slide of the past
week, with New York Mercantile Exchange February crude oil
futures ending down $1.49 at $94.18 a barrel <CLc1>
(Additional reporting by Rutch Pitchford in London)
