ECB, U.S. data help buoy global stocks, euro

By Steven C. Johnson

NEW YORK (Reuters) - The euro rose against the dollar on Thursday after the European Central Bank gave no sign of an imminent rate cut and better-than-expected U.S. economic data helped lift global stocks.

Relative calm in vulnerable emerging markets such as Turkey and South Africa also supported riskier assets and drew investors away from safe-haven U.S. and German government bonds. Major U.S. and European stock indexes rose more than 1 percent.

The ECB left its main interest rate at 0.25 percent Thursday but the central bank's president, Mario Draghi, surprised markets by not signaling a near-term rate cut during remarks to reporters despite deflation worries in the 18-country euro zone.

Draghi's remarks sent the euro, which had lost ground to the dollar immediately after the decision, to a one-week high of $1.3619 and pushed up German bund yields. The euro was last up 0.4 percent at $1.3590.

"While he reiterated that risks for the economy remain to the downside and that inflation pressures are likely to remain subdued, he has not taken any meaningful step closer to easing monetary policy," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange.

Strong corporate earnings reports boosted European stocks by 1.5 percent, dulling disappointment over the ECB. Wall Street was having its best day in a week, thanks in part to data showing fewer Americans than expected filed for first-time jobless claims.

RELATIVE CALM

U.S. jobless claims "are still higher than where they were six weeks ago but are still consistent with a decent job market," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis. "The underlying trend is still positive."

National U.S. employment data due on Friday is expected to show the economy added 185,000 new jobs last month. Smaller-than-expected job gains in December have raised concern about the strength of the U.S. recovery, which sped up in late 2013.

The Dow Jones industrial average was up 171.17 points, or 1.11 percent, at 15,611.40. The Standard & Poor's 500 Index was up 20.34 points, or 1.16 percent, at 1,771.98. The Nasdaq Composite Index was up 46.32 points, or 1.15 percent, at 4,057.87.

Uncertainty about the U.S. recovery has pushed the S&P down more than 4 percent this year after it rose by 29.6 percent in 2013. That likely will not last, said Michael Cuggino, president of Pacific Heights Asset Management, though investors should probably expect less robust returns in 2014.

"If people expect returns like we've seen over the last few years, they might be disappointed," he said. "But I expect people to slowly migrate back toward equities."

The MSCI world equity index rose 1.2 percent, while the yield on the benchmark 10-year U.S. Treasury note rose to 2.71 percent as investors took on more risk. The 10-year yield hit a three-month low of 2.57 percent on Monday.

The banking sector was in the spotlight after Credit Suisse missed expectations with a marginal uptick in fourth-quarter net profit, and its shares were down more than 2 percent.

Relative calm in the capital-hungry emerging markets of Turkey, South Africa and India also lifted developing stocks, after a rout in recent weeks that had driven safe-haven bids to U.S. Treasuries and the yen.

Emerging markets have been inflated in recent years by huge amounts of cheap cash created by the U.S. Federal Reserve. With the Fed now scaling back the program, that flow is reversing, putting pressure on emerging currencies and asset markets.

Emerging stocks were up 1.2 percent after hitting five-month lows earlier this week, while the Turkish lira and South African rand held above recent troughs.

U.S. crude oil settled up 46 cents at $97.84 a barrel. Brent crude rose 96 cents at $107.20.

(Additional reporting by Atul Prakash and Marius Zaharia in London and Richard Leong in New York; Editing by Sophie Hares, Dan Grebler and Chris Reese)