* Fed sparks investor binge on world stocks
* Emerging market debt in demand
* Dollar weaker against major currencies, commodities rise
(Updates with U.S. markets, changes byline, dateline, previous
LONDON)
By Manuela Badawy
NEW YORK, Nov 4 (Reuters) - World stocks rose sharply,
touching new two-year highs, while demand for emerging
sovereign debt increased and the dollar fell on Thursday as the
afterglow of the Federal Reserve's asset buying plan spread.
U.S. government bonds bonds rose after U.S. claims for
unemployment benefits rose by more than expected last week,
dimming expectations for growth in the closely watched non-farm
payrolls numbers due on Friday.
The Fed on Wednesday said it would spend $600 billion
buying longer-term Treasury bonds through to the end of next
June as part of a renewed quantitative easing (QE) program.
This was a little more than expected, but not enough to
spook markets with worries about a worse-than-anticipated U.S.
economic picture.
"The Fed did leave the door open and could take further
action later down the road. That might be another factor
boosting investor confidence," said Keith Bowman, equity
analyst at Hargreaves Lansdown in London.
"We have got another major hurdle to come this Friday with
the release of U.S. jobs data. The QE2 provided some support,
but investors will still be looking to see how the economic
data is panning out and where that takes the authorities
next."
Stocks in general benefit because of the impact of a huge
wave of liquidity into the financial system.
The Dow Jones industrial average <> was up 126.93
points, or 1.13 percent, at 11,342.06. The Standard & Poor's
500 Index <.SPX> was up 12.41 points, or 1.04 percent, at
1,210.37. The Nasdaq Composite Index <> was up 24.94
points, or 0.98 percent, at 2,565.21.
MSCI's all-country world stocks index <.MIWD00000PUS> rose
1.85 percent on the day taking the index to a level last seen
before the collapse of investment bank Lehman Brothers in
September 2008. MSCI's emerging market index <.MSCIEF> gained
1.6 percent.
The pan-European FTSEurofirst 300 <> index of top
European shares was up 1.36 percent climbing to six-month highs
and Japan's Nikkei <> closed up 2.17 percent.
"The (Fed) result was slightly pleasantly surprising," said
Jonathan Schiessl, investment manager at wealth managers
Ashburton in Jersey. "The risk trade is back on."
The trade, which has been running on and off since QE was
first anticipated in late August, essentially involves buying
emerging markets for their better growth prospects and
potential currency appreciation.
Investors have been ploughing into traditionally more risky
emerging market sovereign debt. The yield spread between
emerging market debt and U.S. Treasuries as measured by
JPMorgan <11EMJ> narrowed to levels last seen nearly three
years ago.
The move to QE also came as global manufacturing activity
has accelerated for the first time in six months, creating a
situation in which an already improving world economy has been
given a sharp monetary stimulus. []
DOLLAR DUMPED
The U.S. dollar slumped hitting a 28-year low versus the
Australian currency and a more than nine-month trough against
the euro as a Federal Reserve decision to print more money to
buy $600 billion in Treasuries prompted investors to seek
returns elsewhere.
The dollar, seen as "the victim", fell against a basket
currencies, with the U.S. Dollar Index <.DXY> down 0.94 percent
at 75.76.
The euro <EUR=> was up 0.79 percent at $1.4255, a
nine-month high. Euro gains are being restrained by concerns
over euro zone debt, particularly in Ireland and Greece.
Against the Japanese yen, the dollar <JPY=> was down 0.54
percent at 80.60 from a previous session close of 81.040.
The Fed's commitment to purchase Treasuries, implying low
funding costs, brought into focus an expected increased use of
the dollar in carry trades, in which the U.S. currency is used
to fund purchases in commodities, emerging markets and
higher-yielding currencies.
U.S. government bonds were higher, but appetite for
Treasury supply in the post-Fed announcement world will be
gauged later in the day in an auction of $10 billion of
reopened 10-year Treasury inflation-protected securities.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
29/32, with the yield at 2.4728 percent. The 2-year U.S.
Treasury note <US2YT=RR> was unchanged with the yield at 0.332
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
1/32, with the yield at 4.05 percent.
The Fed's strategy is to prevent a slide in inflation from
becoming a deflationary spiral of falling wages, growth and
business activity, and market players say a dramatically
steeper yield curve may be the new norm.
In energy and commodities prices, U.S. light sweet crude
oil <CLc1> rose $1.53, or 1.81 percent, to $86.22 per barrel,
and spot gold prices <XAU=> rose $28.45, or 2.11 percent, to
$1376.10 an ounce as the dollar weakened.
(Additional reporting by Chris Reese and Gertrude
Chavez-Dreyfuss in New York and Atul Prakash and Jeremy Gaunt
in London, Editing by Chizu Nomiyama)
