* Fed sparks world stocks binge buying
* Emerging market assets in demand
* Dollar weaker against major currencies, commodities rise
(Updates with European markets' close, quote)
By Manuela Badawy
NEW YORK, Nov 4 (Reuters) - World stocks reached over
two-year highs last seen before Lehman Brothers' collapse and
the dollar fell sharply on Thursday on rising risk appetite in
the afterglow of the Federal Reserve's asset buying plan.
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.
Energy and commodity prices rose as the markets concluded
the Fed's move to increase dollar supply would likely weigh the
currency down further, benefitting dollar-priced commodities as
it cuts their cost for other currency holders.
U.S. government bonds rose after claims for unemployment
benefits rose by more than expected last week, dimming
expectations for growth in non-farm payrolls numbers to be
released on Friday.
The Fed's move was a little more than expected, but not
enough to spook markets with worries about a
worse-than-anticipated U.S. economic picture.
"What you achieve with quantitative easing is that you
signal to investors not to buy U.S. government securities, take
the money elsewhere, which in turn will weaken the dollar and
spur economic growth," said Axel Merk, president and portfolio
manager at Merk Investments in Palo Alto, California.
A weaker dollar is viewed as inflationary, but should help
boost a flagging U.S. export sector.
"The Fed in my view is trying to debase the dollar because
printing all that money is not going to spur growth on its own.
The risk is that the money doesn't stick and it doesn't go to
where it's supposed to go," said Merk, who runs the company's
$500 million currency mutual fund.
Stocks in general benefit because of the impact of a huge
wave of liquidity into the financial system. For Fed QE PDF
graphic, click on: http://r.reuters.com/cyh73q
The Dow Jones industrial average <> was up 175.40
points, or 1.56 percent, at 11,390.53. The Standard & Poor's
500 Index <.SPX> was up 16.91 points, or 1.41 percent, at
1,214.87. The Nasdaq Composite Index <> was up 31.15
points, or 1.23 percent, at 2,571.42.
MSCI's all-country world stocks index <.MIWD00000PUS> rose
2.1 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
1.7 percent.
The pan-European FTSEurofirst 300 <> index of top
European shares closed up 1.6 percent to hit levels not seen
since April and Japan's Nikkei <> closed up 2.17 percent.
The prospect of more market intervention by the Fed is again
pushing U.S. bond yields lower, reducing the cost of borrowing
dollars and encouraging investors to use those funds to buy
assets such as commodities, stocks, and higher-yielding
currencies.
Investors have been ploughing into 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
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 and
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 0.83 percent
at 75.849.
The euro <EUR=> was up 0.54 percent at $1.422 after
touching 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 0.43
percent at 80.69 from a previous session close of 81.040.
U.S. government bonds were higher yet 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
27/32, with the yield at 2.48 percent. The 2-year U.S. Treasury
note <US2YT=RR> was up /32, with the yield at 0.3276 percent.
The 30-year U.S. Treasury bond <US30YT=RR> was up 7/32, with
the yield at 4.037 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 $1.50, or 1.77 percent, to $86.19 per barrel,
and spot gold prices <XAU=> rose $31.65, or 2.35 percent, to
$1379.30 an ounce, within a few dollars of its recent record at
$1,347.15 as the dollar weakened.
Silver climbed 3 percent to its highest since 1980,
palladium was up nearly 5 percent to a 9-1/2 year peak and
platinum reached its strongest since May.
(Additional reporting by Chris Reese, Gertrude
Chavez-Dreyfuss in New York and Jan Harvey and Jeremy Gaunt in
London; Editing by Andrew Hay)
