NEW YORK U.S. stocks scaled record highs on Wednesday as weak data reinforced expectations that stimulative central bank policies would continue, while evidence that Europe was stuck in recession pushed the euro to a six-week low against the dollar.
U.S. producer prices fell their most in three years and factory output fell more than forecast in April, raising bets the Federal Reserve will continue to support the U.S. economy, while an unexpectedly strong improvement in home builder confidence also helped stocks.
Some top Fed officials have raised concerns about the risk of slowing growth in domestic prices - or disinflation - snowballing into deflation that can cripple an economy like in Japan in the 1990s. The U.S. central bank's bond purchases have been intended to avert a downward price spiral along with the aim of lowering unemployment.
While the United States has struggled to grow faster, data showing the euro zone economy contracted for a sixth consecutive quarter in the three months through March hurt the euro and bolstered chances that the European Central Bank might cut interest rates again later this year, analysts said.
Growing confidence that the Fed and the ECB will cling to their stimulative policies erased an early dip in U.S. stock prices and lifted European shares to fresh multi-year highs. It also fed safe-haven bids for U.S. Treasuries and German Bunds but demand for the latter tapered off with the surge in U.S. stocks.
"It's disconcerting that the data was so much lower than what we were looking for, but there's no reason for investors to sell," said Michael Binger, senior portfolio manager at Gradient Investments in Minneapolis. "The main things driving the market - the Fed, earnings, consumer confidence - are holding up, and people put money in the market on any down day. I still see a lot of value."
Still, the sluggish pace of growth in the United States and record unemployment in France and Spain highlight the limits of ultra-loose monetary policies to help struggling economies, analysts said.
The bleak news on the euro zone economy spurred worries about falling energy demand and pushed Brent futures in London below $102 a barrel in early trading. But they reversed course with a rebound in equity prices.
While the euro weakened, the dollar hovered near its 4-1/2-year high against the yen and held firm against other major currencies. The dollar index touched its highest since July.
The strengthening dollar further reduced investor holdings in gold, which fell 2.3 percent to a three-week low of $1,389.04 an ounce, stretching losses into a fifth session.
The Dow Jones industrial average ended up 60.44 points, or 0.40 percent, at 15,275.69. The Standard & Poor's 500 Index closed up 8.44 points, or 0.51 percent, at 1,658.78. The Nasdaq Composite Index finished up 9.01 points, or 0.26 percent, at 3,471.62.
The Dow and S&P 500 have each risen about 16 percent so far this year, beating the broad FTSEurofirst 300 index of top company shares which has climbed about 10 percent. The performance of those indexes, however, pales against the 45-percent advance of Tokyo's Nikkei index year to date.
"This can continue as long as the policy remains tilted towards pushing investors at the margin towards riskier assets and that is essentially what it is," said Chris Wolfe, chief investment officer for Merrill Lynch Wealth Management Private Banking and Investment Group in New York.
In addition to the Fed buying $85 billion in bonds each month, the ECB cut its policy rate to a record low of 0.50 percentage point last week, following the Bank of Japan's $1.4 trillion stimulus plan announced in April.
Europe's FTSEurofirst 300 index of top company shares ended 0.7 percent higher at 1,245.66, a level not seen since mid-2008.
The broad gains in equity prices lifted the MSCI global index. It ended up 0.3 percent at 377.54, the highest since June 2008.
In the bond market, the yield on benchmark U.S. 10-year Treasury notes fell 4 basis points to 1.945 percent after touching the highest in seven weeks on Tuesday. The 10-year yield pared earlier declines after a private survey showed U.S. homebuilder confidence rose more than forecast in May, suggesting the housing recovery stayed intact.
German Bund futures were up six basis points at 144.80, holding above their lowest level in seven weeks set on Tuesday.
At the end of the sovereign debt spectrum, 10-year Greek bond prices surged after Fitch Ratings upgraded the country's junk credit ratings, saying reforms had reduced Greece's risk of a euro zone exit.
Attention was also on Italy's preparations to launch a new 30-year bond to follow the successful 10-year debt sale by Spain on Tuesday. Italy, the euro zone's third-biggest economy, received 12.7 billion euros of orders for the new bond, according to IFR, a unit of Thomson Reuters.
While investor appetite for the debt of these struggling euro zone members was encouraging, the 17-member block has remained in the doldrums, which has been a drag on its two biggest members, Germany and France.
The euro fell 0.3 percent against the dollar at $1.2880 and declined 0.46 percent against the yen at 131.69 yen in late New York trading.
On the other hand, the dollar steamed ahead against most other major currencies with the exception of the yen. The dollar index rose 0.24 percent to 83.799 even though the greenback slipped 0.1 percent against the Japanese currency.
The strengthening dollar hurt commodities prices, as it has made dollar-denominated commodities such as oil more expensive for holders of other currencies.
But the oil market snapped a four-session losing streak due to gains in equity prices. Benchmark Brent crude settled up $1.08 or 1.05 percent at $103.68 a barrel, while U.S. oil futures ended up 9 cents or 0.1 percent at $94.30.
(Additional reporting by Chuck Mikolajczak in New York and Richard Hubbard and Blaise Robinson in London; Editing by Bernadette Baum and James Dalgleish)