U.S. and European stocks rose and the euro bounced off lows against the dollar on Friday after sources said the European Central Bank is considering setting yield-band targets under a new bond-buying program.
Stocks had earlier come under pressure on renewed worries about Greece and uncertainty over how Europe will attempt to bring down Spain's crippling borrowing costs. Speculation has grown in recent weeks that the ECB will soon start buying Spanish and Italian bonds.
Setting a yield band is an option gaining favor among central bankers, but the decision would not be made before the ECB's September 6 policy meeting, central bank sources told Reuters on Friday. It wasn't clear how wide the band would be or how the ECB would decide when to intervene in the bond markets to lower borrowing costs.
"Any time we get comments out of Europe that create a perception that they are working diligently to solve the debt issue, the euro starts to rally, (the) dollar goes lower and in return, our equity markets move higher," said Randy Frederick, managing director of active trading at Charles Schwab.
"I'm not sure if this will have lasting impact on the market."
The Dow Jones industrial average <.DJI> was up 76.67 points, or 0.59 percent, at 13,134.13. The Standard & Poor's 500 Index <.SPX> was up 7.34 points, or 0.52 percent, at 1,409.42. The Nasdaq Composite Index <.IXIC> was up 16.14 points, or 0.53 percent, at 3,069.54.
The FTSEurofirst-300 index of pan-European shares <.FTSE> rose 0.11 percent to end at 1,090.38 points. The MSCI global stock index <.MIWD00000PUS> inched down just 0.04 percent to 324.46.
Sentiment remained fragile and worries about Greece supported safe-haven German government bonds, which rallied to their biggest weekly gains since early July.
Germany and France want Greece to stay in the euro zone, but Athens must meet its commitments, German Chancellor Angela Merkel said after meeting Greek Prime Minister Antonis Samaras.
The euro fell 0.2 percent to $1.2533, off a session low of $1.2481 on Reuters data. It briefly erased losses to trade little changed after the ECB report.
The euro zone's common currency fell to a session low against the dollar after Market News International reported that senior euro-zone officials said the German Finance Ministry is seriously considering a plan in which Greece would be obliged to ask for a temporary exit from the euro zone until it sorts out its public finances.
Against the yen, the dollar rose 0.2 percent to 78.62 yen.
Mixed U.S. economic data on Friday further weighed on sentiment, adding to uncertainty over whether the Fed would act soon to bolster the stalled economic recovery.
New orders for long-lasting U.S. manufactured goods surged in July, but a gauge of planned business spending declined for a second straight month, pointing to slowing growth in manufacturing.
Hopes for economic stimulus had grown after minutes from the Fed's latest meeting showed policymakers might deliver another round of stimulus "fairly soon" unless the economy improves considerably.
"There is some volatility at the core, but the overall feeling is that the economy is still trending in the right direction," said Ravi Bharadwaj, a market analyst at Western Union Business Solutions in Washington. "For now, based on the string of reports we've had so far, there doesn't seem to be a need of further quantitative easing from the Fed."
The benchmark 10-year U.S. Treasury note erased gains and rose 4/32 in price with a yield of 1.668 percent. Bond prices drew support after news that Federal Reserve Chairman Ben Bernanke said in a letter to federal lawmakers that there was scope for further monetary stimulus to help the economy.
Brent crude seesawed as concerns about Europe and the global economy clouded the outlook for petroleum demand, while a tropical storm and other potential threats to supply lifted U.S. oil futures.
Brent October crude fell 93 cents to $114.08 a barrel. U.S. crude was up 11 cents at $96.38 a barrel.
Gold prices stayed on track for their biggest weekly gain since early June, following a seven-session rally to 4 1/2-month highs.
U.S. gold futures for December delivery rose 80 cents to $1,673.60 an ounce in early afternoon trading in New York.
Spot gold last traded at $1,670.69 an ounce.
