Global markets surge on China-U.S. trade truce, dollar dips, yuan up

By Laila Kearney

NEW YORK (Reuters) - A temporary ceasefire in the U.S.-China trade war boosted global stocks to their highest in about three weeks on Monday, while sending the dollar lower and the Chinese yuan and several trade-dependent currencies higher.

The rally in equities follows an agreement reached between Washington and Beijing at the G20 summit in Argentina on Saturday that calls for a 90-day trade tariff truce.

"Most of us were hoping that we would come out of these discussions with no new tariffs and a pause, which is ultimately what we got," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

The Dow Jones Industrial Average rose 225.51 points, or 0.88 percent, to 25,763.97, the S&P 500 gained 19.73 points, or 0.71 percent, to 2,779.9 and the Nasdaq Composite added 87.31 points, or 1.19 percent, to 7,417.85.

The pan-European STOXX 600 index rose 0.98 percent.

U.S. President Donald Trump said China has agreed to "reduce and remove" tariffs below the 40 percent level that is currently being charged on U.S.-made vehicles. That helped boost shares of European automakers more than 3 percent.

The White House also said that the existing 10 percent tariffs on $200 billion worth of Chinese goods would be increased to 25 percent if no deal was reached within 90 days.

MSCI's all-country world index climbed 0.25 percent, marking its sixth consecutive day of gains.

In currency markets, the U.S. dollar fell broadly as currencies battered by trade tensions staged a comeback.

China's yuan and several trade-dependent currencies made strong advances against the greenback as investors sold the safe-haven U.S. currency and bought up riskier assets.

"It's pretty much a sigh of relief across the board," said Brad Bechtel, global head of FX at Jefferies in New York.

The offshore yuan gained about 1 percent, while the Aussie - viewed as a barometer of Chinese growth - was 0.7 percent higher against the greenback.

The New Zealand dollar gained 0.8 percent, while the U.S. dollar lost 0.8 percent against the Canadian dollar.

Meanwhile, the sterling gave up all of its early gains and dived to its lowest level since the end of October as growing concerns about British parliamentary approval for a proposed Brexit deal prompted investors to sell the currency.

"Until the British parliament votes on the deal next week we are going to see a steady drum beat of Brexit headlines, which is going to keep the pound weak," Danske Bank strategist Morten Helt said, referring to a Dec. 11 lawmakers' vote on Prime Minister Theresa May's agreement on leaving the European Union.

U.S. Treasury yields rose after the U.S.-China deal to hold off on new tariffs reduced demand for safe-haven U.S. debt, but they reversed course in midday trading.

Germany's 10-year government bond, the benchmark for the euro area, initially rose four basis points to 0.347 percent, but eased back to 0.3 percent.

Yields on riskier southern European bonds were down across the board, while Italian bonds trimmed some gains after the European Central Bank revealed Italy's share of ECB capital would be cut slightly.

In oil, prices jumped by more than 5 percent after the United States and China agreed the 90-day trade dispute truce, Canada's Alberta province ordered a production cut, and as exporter group OPEC looked set to reduce supply.

(Additional reporting by Virginia Furness, Saikat Chatterjee, Saqib Iqbal Ahmed in New York, Wayne Cole and Hideyuki Sano in Sydney and Tokyo; editing by Jon Boyle, Larry King and Bill Berkrot)