Global stocks, euro rally on relief over Goldman, IMF

Passers-by walk in front of a stock quotation board in Tokyo December 9, 2011.

NEW YORK (Reuters) - Stocks surged on Wednesday after better-than-expected earnings from Goldman Sachs eased worries about U.S. banks' profits in the fourth quarter, while the euro rallied on the IMF's move to increase its ability to fight the European crisis.

Investors will keep a watchful eye on Europe, though, with the outcome of Greek debt restructuring talks unknown. A deal with the private sector is vital to cash-strapped Athens if it is to gain its next batch of international aid and avoid going bankrupt when 14.5 billion euros ($18.5 billion) of bond redemptions fall due in late March.

"It's too early to get excited about Europe, but the IMF news is clearly a positive and a sign Europe is on its way to stabilizing," said Jerome Heppelmann, chief investment officer at Old Mutual Focused Fund in Berwyn, Pennsylvania.

The S&P 500 and Nasdaq stock indexes both rose more than 1 percent, responding to the International Money Fund's fund-raising efforts and Goldman Sachs Group Inc's (GS.N) earnings -- which topped analysts' expectations.

The IMF said it is seeking to boost its funding base by $600 billion to lend money to countries struggling with the fallout from the euro zone debt crisis.

The euro rose for a third straight session against the dollar. Indications that Fitch Ratings may not downgrade Italy after all - versus earlier comments by a director of the rating agency that a two-notch downgrade was an option - also lifted the common currency.

"Although very few people will argue that the European sovereign debt crisis will intensify in the coming months, euro/dollar is rallying on the hope of additional support from inside or outside of Europe," said Kathy Lien, director of FX research at GFT in Jersey City.

Copper futures in New York and London steadied from early losses. Gold also rose on the euro's strength versus the dollar.

The higher appetite for risk weighed on bonds. Thirty-year U.S. Treasuries prices lost a point, trading down 1-14/32 in price to yield 2.96 percent, up from 2.89 percent late on Tuesday.

The Dow Jones industrial average .DJI closed up 96.88 points, or 0.78 percent, at 12,578.95. The Standard & Poor's 500 Index .SPX was up 14.37 points, or 1.11 percent, at 1,308.04. The Nasdaq Composite Index .IXIC was up 41.63 points, or 1.53 percent, at 2,769.71.

Goldman shares (GS.N) rose nearly 7 percent to close at $104.31 after Wall Street's biggest bank by assets exceeded analysts' expectations for earnings per share by nearly 50 percent through cost cutting and lower taxes.

"Goldman is adjusting and continuing to operate reasonably well in a difficult environment," said Gary Townsend, president of Hill-Townsend Capital.

Goldman earned $978 million, or $1.84 per share, during the last three months of 2011, down from $2.2 billion, or $3.79 per share, a year earlier. Analysts on average had expected a profit of $1.24 per share, according to Thomson Reuters.

World stocks, as measured by the MSCI All World index .MIWD00000PUS, rose 0.8 percent, touching a two-month high.

An index of pan-European shares .FTEU3 ended flat, paring early gains, on worries about the Greek debt restructuring talks.

International creditors and the Greek government are meeting later on Wednesday over the interest rate that Athens will offer on new bonds and its plan to enforce private investor losses.

"Greek bond negotiations could trigger more euro weakness as they have to close a deal soon, before Greek debt repayments are due in March," said Richard Falkenhall, currency strategist at SEB in Stockholm.

Concerns about Greece led investors to stock up on other European debt.

A German sale of 3.44 billion euros ($4.4 billion)of two-year bonds spurred strong demand.

A widely watched sale of 2.5 billion euros of Portuguese treasury bills also benefited from ample liquidity in the financial system. Portugal is the only country in the euro zone, apart from Greece, that is rated at junk levels by all the major rating agencies.

Analysts said euro zone debt auctions will continue to be a major driver of investor sentiment this week, with several governments lining up to refinance their debt. The French and Spanish bond auctions are expected to attract the most attention.

(Additional reporting by Ryan Vlastelica in New York, and Richard Hubbard, William James and Naomi Tajitsu in London; Editing by Padraic Cassidy)