World stocks fly after U.S. data, Fed official cools on rate hike

By Sinead Carew

NEW YORK (Reuters) - World stock markets around the world rallied on Thursday and crude oil rebounded sharply after strong U.S. economic data and hints from a U.S. Federal Reserve policymaker that a September interest rate hike was unlikely.

All three major U.S. indexes were up almost 2 percent and increased appetite for risk sent government bond prices and the Japanese yen down while the dollar advanced.

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.

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

"People are re-evaluating the effect of China's slowdown on the rest of the world. We had some moderately good economic numbers this morning," said Giri Cherukuri, head trader and portfolio manager, at Oakbrook Investments in Lisle, Illinois.

The Dow Jones industrial average was up 282 points, or 1.73 percent, at 16,567.51, the S&P 500 gained 36.96 points, or 1.9 percent, to 1,977.47 and the Nasdaq Composite added 90.83 points, or 1.93 percent, to 4,788.37.

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.

In Europe the FTSEuroFirst index of leading European companies closed up 3.7 percent. Germany's DAX, France's CAC 40 and Britain's FTSE 100 also climbed more than 3 percent.

The two main Chinese indices surged 5.3 percent and 5.9 percent on Thursday, snapping a five-day losing streak that had wiped around 20 percent in market value and sent tremors around global financial markets.

U.S. Treasuries prices fell with most yields rising to one-week highs after the government upgraded its reading on second-quarter economic growth.

Dudley's comments came amid alarming market volatility and as investors watch a annual meeting of the world's top central bankers in Jackson Hole, Wyoming for clues on how the turmoil may shake up policy plans.

Emerging markets stocks and currencies rebounded with MSCI's benchmark emerging market stocks index up 3.1 percent.

Ukraine's central bank became the 39th monetary authority to ease policy this year, cutting interest rates to 27 percent from 30 percent to support flagging growth. Ukraine also reached a deal to restructure $18 billion of debt.

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 around midday.

Crude oil rocketed more than 6 percent in a snapback from a deep two-month slump as stock market rallies and news of diminished oil supplies drove a short-covering surge.

U.S. crude futures were up 7.7 percent at $41.57 a barrel. The contracts had slumped to a 6 1/2-year low on Monday, dogged by a supply glut and China worries. Brent rose 7 percent to $46.21.

Copper was up about 3.8 percent, moving further away from Monday's six-year low. Spot gold was roughly flat with the previous day's close.

(Additional reporting by Shinichi Saoshiro and Lisa Twaronite in Tokyo; 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)