(Adds close of U.S. market; oil, gold settlement prices)
* Stocks jump on growing expectations of central bank
stimulus
* Dollar gains on U.S. housing data, euro's decline
* German bond yields bounce off lows after budget report
* Oil edges higher on stock market gains
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Herbert Lash
NEW YORK, Aug 16 (Reuters) - U.S. and European stocks surged
on Friday on expectations the European Central Bank will cut
interest rates but the dollar pared gains against the euro after
a report said the German government was prepared to take on new
debt to lift the economy.
The dollar hit a two-week high against the euro as
expectations of ECB stimulus weighed on the single currency and
bullish data showing a jump in U.S. homebuilding permits to a
seven-month high also helped lift the greenback. But German and other euro zone government bond yields rose
late Friday on a Der Spiegel report. Borrowing costs had plumbed
new lows throughout the week as investors unnerved by the
prospect of European recession piled into safer assets.
The euro rebounded to pare most losses after Der Spiegel
magazine said the German government would be prepared to ditch
its balanced budget rule and take on new debt to counter a
possible recession. Germany's Finance Ministry declined to comment on the
report.
There has been a rising drumbeat of news recently from
German politicians and businesses calling for a stimulus
program, said Karl Schamotta, director of global markets
strategy at Cambridge Global Payments in Toronto.
"Markets are still betting on a raft of stimulus measures
from the ECB in September and that is having a pretty strongly
negative effect on the euro," Schamotta said. "But in the near
term, this idea that we could see more spending out of Germany
is helping to alleviate that."
The German 10-year bund yield DE10YT=RR rose to a negative
0.688%, having earlier hit a record low of negative 0.727%.
Rates turned negative in March and have trended lower since May.
The rebound in equity markets buoyed investor sentiment,
though it is hard to say the recent rout has found a floor
despite cheaper prices, said Yousef Abbasi, global market
strategist at INTL-FCStone Financial in New York.
U.S. banks are likely to get cheaper because European banks
are likely to do so if the ECB does not put together a credible
off-set plan for further negative rates for banks, he said.
"That's the concern. Despite some equities looking
attractive the macro concern is giving investors a reason to
pause and not so aggressively buy the dip," Abbasi said.
Technology shares led Wall Street's advance but U.S. stocks
posted a third straight week of declines, battered by the
U.S.-China trade row and an "inversion" of 2- and 10-year bond
yields that sparked fears of a recession.
MSCI's gauge of stock performance in 47 countries
.MIWD00000PUS gained 1.18% and its emerging market .MSCIEF
rose 0.69%. In Europe, the FTSEurofirst 300 .FTEU3 index of
leading regional shares closed 1.23%.
The Dow Jones Industrial Average .DJI rose 306.62 points,
or 1.2%, to 25,886.01. The S&P 500 .SPX gained 41.08 points,
or 1.44%, to 2,888.68 and the Nasdaq Composite .IXIC added
129.38 points, or 1.67%, to 7,895.99.
The euro earlier slid to $1.1090 EUR= , shy of a two-year
low it set two weeks ago, on reports the ECB's Olli Rehn had
suggested Thursday that a significant easing package was needed
in September.
The dollar index .DXY rose 0.06%, with the euro EUR=
down 0.15% to $1.1089. The Japanese yen JPY= weakened 0.23%
versus the greenback at 106.35 per dollar.
The German 10-year bund posted a fifth straight week of
declines, Italy's 10-year bond yield set its biggest weekly fall
since late 1997 and the decline in Spanish 10-year yields were
the largest since at least 1994 ES10YT=RR .
The benchmark 10-year U.S. Treasury notes US10YT=RR fell
9/32 in price to push yields up to 1.5589%. Crude oil prices recovered from two days of declines after
data on Thursday, showing a rise in U.S. retail sales, helped
ease recession concerns. A bearish outlook from OPEC capped
gains. Brent crude LCOc1 rose 41 cents to settle at $58.64 a
barrel while U.S. crude CLc1 settled 40 cents higher at $54.87
a barrel.
U.S. gold futures GCcv1 settled down 0.5% at $1,523.60 an
ounce.
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GRAPHIC-Global assets in 2019 http://tmsnrt.rs/2jvdmXl
GRAPHIC-World FX rates in 2019 http://tmsnrt.rs/2egbfVh
GRAPHIC-MSCI All Country World Index Market Cap http://tmsnrt.rs/2EmTD6j
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