Stocks up on signs economy bottoming

By Walter Brandimarte

NEW YORK (Reuters) - World stocks edged higher and U.S. government bonds fell on Thursday after stronger-than-expected U.S. employment data and an improvement in an index of regional business conditions underpinned the view that the U.S. recession may be nearly over.

Improved investor sentiment also supported oil prices above $71 a barrel, after the data raised hopes for economic recovery and an increase in demand for energy.

But the U.S. dollar strengthened against the euro in the afternoon after initially falling against major currencies as the positive economic data increased investors' appetite for higher-yielding assets.

Government reports showed the number of people staying on U.S. jobless benefits, after collecting an initial week of aid, fell for the first time since January, while manufacturing in the U.S. Mid-Atlantic coast area contracted in June much less severely than expected.

"With the combination of those two (data), the market is beginning to believe the economy is putting in a bottom," said Giri Cherukuri, head trader at Oakbrook Investments in Lisle, Illinois.

"In the next few weeks we'll start getting earnings reports, and we'll get real evidence of how the economy is doing."

The Dow Jones industrial average .DJI ended higher 58.42 points, or 0.69 percent, at 8,555.60. The Standard & Poor's 500 Index .SPX rose 7.66 points, or 0.84 percent, to 918.37, while the Nasdaq Composite Index .IXIC lost 0.34 points, or 0.02 percent, at 1,807.72.

The MSCI world equity index .MIWD00000PUS climbed 0.31 percent but the MSCI index for emerging-market stocks .MSCIEF still slipped 0.82 percent.