(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 5 (Reuters) - Oil and gold surged to new
highs and global stocks rallied on Wednesday after data showed
the U.S. economy may not be in such dire straits as many had
feared.
Investors viewed a report that the U.S. service industry
shrank at a much slower pace than expected in February as a
positive. An unexpected drawdown on U.S. crude stocks last week
suggested demand in the flagging U.S. economy is still strong,
boosting crude futures as well.
But the dollar fell to record lows against the euro and a
basket of currencies on the view that the U.S. economy will
require more stimulus, resulting in wider interest rate
differentials with Europe.
With the dollar remaining under pressure, spot gold prices
jumped $30 to a historic high above $995 an ounce, and silver
spiked to a 27-year peak.
Prices for U.S. Treasury debt fell on the unexpectedly
strong rebound in the U.S. service sector in February, which
spurred an unwinding of safe-haven bond positions.
The better-than-expected reading from the Institute for
Supply Management on its non-manufacturing index reversed
investor sentiment after an unexpected drop in private payrolls
in February was seen in the ADP National Employment Report
earlier in the New York trading day.
The ISM reading was in line with how many economists see
the economy. After a sharp weakening late last year and into
2008, the level of activity has stabilized a bit even though it
still seems pretty bad, said Stephen Stanley, chief economist
at RBS Greenwich Capital Markets in Greenwich, Connecticut.
"ISM services was a big relief after January's number had
been so incredibly weak... It is very consistent with our
general read of where we are right now," Stanley said.
The Dow Jones industrial average <> rose 98.10 points,
or 0.80 percent, to 12,311.90. The Standard & Poor's 500 Index
<.SPX> was up 13.33 points, or 1.00 percent, at 1,340.08. The
Nasdaq Composite Index <> was up 24.32 points, or 1.08
percent, at 2,284.60.
"The (stock) market has been hit since Friday quite hard,
so it's kind of looking for any kind of good news," said Alan
Lancz, who runs a money management firm in Toledo, Ohio. "So
the non-manufacturing ISM is moderately positive, but it's
definitely not a game changer."
U.S. stocks extended gains as trading in Ambac Financial
Group Inc <ABK.N> was halted with news pending, bolstering
views that a deal to bail out the bond insurer was imminent.
Some anticipated the troubled bond insurer Ambac might make an
announcement on a proposed restructuring and possible cash
infusion.
European shares snapped a five-day losing streak, helped by
the hopes of an imminent rescue package for bond insurer Ambac
and better-than-expected U.S. service sector data.
The pan-European FTSEurofirst 300 <> ended
unofficially up 1.6 percent at 1,300.98 points.
Banks and commodity stocks were the top weighted gainers in
Europe, led by HBOS <HBOS.L>, up 6 percent, and Societe
Generale <SOGN.PA>, which rose 3.5 percent.
Miners tracked copper prices higher, and oil stocks
followed a rise in crude. BP <BP.L>, Total <TOTF.PA> and Royal
Dutch Shell <RDSa.L> all gained.
Investors awaited interest rate decisions from the European
Central Bank and the Bank of England on Thursday.
The dollar fell as Treasury Secretary Henry Paulson told
policy-makers that while the U.S. economy would likely continue
to grow, the risks were to the downside, adding to mounting
fears of a recession in the United States.
The ISM reading, while better than expected, still showed
U.S. economic growth is shrinking.
ISM's non-manufacturing index climbed to 49.3 in February,
beating market expectations for a reading of 47.0 and above
January's print of 44.6. A reading below 50 is a contraction.
"The data is fully in keeping with the Fed's base line
scenario that the economy continued to weaken in the first
quarter and the need for continued rate cuts," said Michael
Woolfolk, a currency strategist at Bank of New York Mellon in
New York.
The euro <EUR=> jumped to a historic peak of $1.5302
against the dollar, according to Reuters data.
The dollar index, which tracks the greenback's performance,
against a basket of currencies, dropped to record troughs at
73.371 <.DXY>.
Oil hit an all-time high above $104 a barrel after a
surprise fall in U.S. crude stocks, which fell 3.1 million
barrels last week, the Energy Information Administration said,
confounding expectations for a 2.4 million barrel increase.
"This actually shows that maybe demand isn't going to be as
weak as we previously thought, especially with refinery use
jumping," said Rob Kurzatkowski, an analyst with
Optionsxpress.
U.S. crude futures <CLc1> climbed to a record peak of
$104.56 earlier in the session.
London Brent crude <LCOc1> surged $3.25 to $100.77.
Gold <XAU=> rose as high as $990.90 an ounce against
$963.20/964.00 in New York late Tuesday.
Spot silver <XAG=> jumped as high as $20.82 an ounce,
compared with $19.71/19.76 in New York.
(Writing by Herbert Lash. Editing by Richard Satran)
