(Bloomberg News) Stocks surged, extending the biggest three-day rally in global equities since 2009, and the euro strengthened as six central banks made additional funds available to ease strains from Europe's debt crisis. Treasuries fell while commodities jumped.
The MSCI All-Country World Index climbed 3.4 percent at 3:50 p.m. in New York and is up 7.4 percent in three sessions. The Standard & Poor's 500 Index gained 4 percent to 1,243.10, while the Stoxx Europe 600 Index capped its best four-day gain in three years. The dollar weakened against all 16 major peers, with the euro up 1 percent to $1.3443. The cost for European banks to fund in dollars retreated from the highest since 2008. Oil jumped to almost $101 a barrel and copper rose 5.4 percent.
The central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed to cut the cost of providing dollar funding via swap arrangements, the Federal Reserve said, and agreed to make other currencies available as needed. China said earlier today it will cut the reserve requirement ratio for banks by 0.5 percentage points, while data on U.S. business activity and the employment and housing markets topped economists' estimates.
"I'm in a better mood today than I've been in a while," Burt White, who helps oversee about $315 billion as chief investment officer at LPL Financial Corp. in Boston, said in a telephone interview. "This coordinated effort is a huge one. It is not a European problem, it's a global problem. If we don't get Europe solved, it's going to send pretty big ripples across the globe. We really could see some upside for the market, if this momentum continues."
Euro-area finance ministers said they would seek a greater role for the International Monetary Fund and the European Central Bank in fighting the sovereign debt crisis after conceding an effort to expand their bailout fund missed its target. The ministers yesterday agreed to guarantee as much as 30 percent of new bond sales from troubled governments, and to improve its ability to cap yields by buying bonds. European heads of government will meet in Brussels on Dec. 9 to discuss the crisis.
The new interest rate central banks are offering for dollar funding is the dollar overnight index swap rate plus 50 basis points, a half percentage-point cut, and the program was extended by six months to Feb. 1, 2013, the Fed said today. The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies if needed.
The actions helped ease a surge in borrowing rates fueled by concern about a possible breakup of the euro area.
The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 131 basis points below the euro interbank offered rate after earlier reaching a three-year high of 163. The U.S. two-year interest-rate swap spread fell the most in nine months. Predictions in the forward markets of how reluctant banks will be to lend in the first quarter dropped from an 18-month high.