Markets rebound from China slump, strong U.S. data helps

By Sinead Carew

NEW YORK (Reuters) - Stock markets around the world rallied on Thursday, shaking off a slump related to China growth fears, as strong U.S. economic data boosted investor sentiment and crude oil rebounded sharply.

All three major U.S. indexes closed up more than 2 percent, putting them higher for the week, following share rebounds in China and Europe. Increased appetite for risk sent government bonds and the Japanese yen down Wednesday while the dollar rose.

Annual U.S. gross domestic product growth was revised to 3.7 percent from the 2.3 percent rate reported last month and last week's jobless claims fell more than expected.

"Can the U.S. economy prove the naysayers wrong? Well, so far it has been able to do that and today's data really puts a line under that," said Peter Kenny, chief market strategist at Clearpool Group in New York.

The data came after New York Fed President William Dudley had said Wednesday that arguments for a September rate increase "seem less compelling" than only weeks ago, given the threat posed to the U.S. economy by recent market turmoil.

On top of these factors investor nerves in China and Europe were helped overnight by Wall Street's Wednesday rally, as well as strong lending data from Europe, according to John Canally, Chief Economic Strategist for LPL Financial.

"People are just taking a second look at what caused the 10 percent correction in the first place. Not only is the Chinese market not connected to the global economy. It's not connected to the Chinese economy."

Markets around the world plunged earlier in the week as a slump in Shanghai shares fuelled worries over China's economic health. While Beijing moved to ease policy late on Tuesday, stocks still ended weak that day, but Wall Street staged a strong comeback late Wednesday and its biggest daily gain in four years helped to calm investor nerves overseas.

The Dow Jones industrial average rose 369.26 points, or 2.27 percent, to 16,654.77, the S&P 500 gained 47.15 points, or 2.43 percent, to 1,987.66 and the Nasdaq Composite added 115.17 points, or 2.45 percent, to 4,812.71.

Most U.S. Treasuries prices fell modestly, as the Wall Street rally and the U.S. data revived some bets the Federal Reserve would raise rates by year-end.

The spate of market volatility comes also as investors watch an annual meeting of the world's top central bankers in Jackson Hole, Wyoming for clues on how the turmoil may shake up policy plans.

In Europe, the FTSEuroFirst index of leading European companies closed up 3.6 percent. Germany's DAX <.GDAXI>, France's CAC 40 <.FCHI> and Britain's FTSE 100 <.FTSE> all climbed more than 3 percent.

The two main Chinese indices surged 5.3 percent <.SSEC> and 5.9 percent <.CSI300> on Thursday, snapping a five-day losing streak that had sent tremors around global financial markets.

Emerging markets stocks rebounded with MSCI's benchmark emerging market stocks index <.MSCIEF> up 3.3 percent.

The dollar advanced for a third consecutive session, bolstered by gains in global equities as well as the U.S. data. The dollar index , which measures the greenback against a basket of major currencies, was up 0.7 percent Thursday afternoon.

Crude oil rocketed in its biggest one-day rally since 2009 as recovering equity markets and news of diminished crude supplies set off a short-covering surge by bearish traders.

U.S. crude futures settled up 10.3 percent at $42.56 a barrel. The contracts had slumped to a 6 1/2-year low on Monday, dogged by a supply glut and China worries. Brent settled up 10.3 percent to $47.56.

Copper was up about 4.2 percent, moving further away from Monday's six-year low.

(Additional reporting by Shinichi Saoshiro and Lisa Twaronite in Tokyo and Chuck Mikolajczak in New York; Editing by Larry King and Nick Zieminski; To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)