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Dollar extends rally, euro weak; political risk jolts Italian markets

Reuters  |  NEW YORK 

By Lewis Krauskopf

NEW YORK (Reuters) - The U.S. dollar rallied further to a five-month high on Wednesday, supported by relatively robust U.S. economic data in recent days, while Italy's borrowing costs jumped and its stocks slid on concerns linked to economic plans from the country's potential coalition government.

Wall Street's main stock indexes gained, with the small-cap benchmark marking a record high.

Investors were digesting Tuesday's surge in U.S. yields on the heels of a report that fuelled the dollar and hurt stocks.

The benchmark 10-year note yield held well above 3 percent after bursting through key technical levels on Tuesday. Data on Wednesday showed U.S. industrial production increased solidly in April, the latest indication that the was gathering momentum early in the second quarter.

"There is a lot of talk about the risks of interest rates and that's real. But then there's the question of why rates are rising and that's faster growth," said Brad McMillan, for in Waltham,

The Dow Jones Industrial Average <.DJI> rose 62.52 points, or 0.25 percent, to 24,768.93, the <.SPX> gained 11.01 points, or 0.41 percent, to 2,722.46 and the <.IXIC> added 46.67 points, or 0.63 percent, to 7,398.30.

Shares of U.S. retailers <.SPXRT> rose 0.5 percent after results from , whose shares jumped 10.8 percent.

The <.RUT> rose 1.0 percent and set its first record high since late January.

"For small caps, they are not exposed to a lot of the risks that larger caps are facing," McMillan said.

Italy's two anti-system parties appeared on the verge of clinching a deal to form a coalition government, rattling markets with radical ideas to free up billions of euros for tax cuts and welfare.

Investors seized on a report that the anti-establishment and the far-right plan to ask the to forgive 250 billion euros ($296 billion) of Italian debt, according to a draft the parties are working on.

Italian stocks <.FTMIB> tumbled 2.3 percent while Italy's 10-year yield jumped nearly 19 basis points to 2.13 percent .

"It's right to resonate with markets because it tells you about the sense of the wisdom between these negotiating parties," said Chris Scicluna,

Other major European stock markets were higher, and the pan-European index <.FTEU3> rose 0.19 percent, supported by the weaker euro.

MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.17 percent.

threw next month's summit between and U.S. into doubt by saying it may reconsider if insists it unilaterally gives up its nuclear weapons.

"Investors have gotten sort of used to this. Whether we are talking about or the trade discussions with ... I think investors are recognising we are at the beginning of the beginning of this, so it's not anything to make dramatic portfolio moves or any significant bets on," said Katie Nixon, for the wealth management division of in

yields ended slightly higher, with the 10-year yield touching near a seven-year high.

Benchmark 10-year notes last fell 6/32 in price to yield 3.1001 percent, from 3.08 percent late on Tuesday.

The dollar index <.DXY>, which measures the greenback against a basket of six other currencies, rose 0.16 percent to 93.365 after rising to 93.632 during the session, its highest since mid-December. The euro was down 0.26 percent to $1.1806.

gained after an inventory report showed U.S. crude and gasoline stocks fell more than expected.

U.S. crude settled up 0.25 percent at $71.49 a barrel, while benchmark Brent settled at $79.28, up 1.08 percent.

(Additional reporting by and in London and Danilo Masoni in Milan; Editing by and James Dalgleish)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, May 17 2018. 02:05 IST