June 7, 2012 / 4:12 PM / in 7 years

GLOBAL MARKETS-China rate cut lifts shares; dollar up on Bernanke

(Updates prices, adds details, comments)

* China cuts rates 25 basis points in surprise move

* Fed offers few hints of stimulus, supporting dollar

* Spanish bond yields fall after strong debt sale

By Wanfeng Zhou

NEW YORK, June 7 (Reuters) - Global stocks rose on Thursday after China unexpectedly cut interest rates to shore up its flagging economy, while the dollar gained against the euro after Federal Reserve Chairman Ben Bernanke dampened expectations that further measures to boost the U.S. economy were imminent.

Hopes that central banks in the United States and Europe would act to bolster the global economy had driven world shares up more than 3 percent this week after steep losses in May.

Bernanke, in testimony to Congress, said the Fed was ready to shield the economy if financial troubles mount, but his tone was far from crisis mode.

He said the central bank was monitoring “significant risks” to the U.S. recovery from Europe’s debt and banking crisis closely. But he also said, “Despite economic difficulties in Europe, the demand for U.S. exports has held up well.” ID:nW1E8G900O]

“People had built up this hope that something significant was going to happen, and perhaps that was disappointing,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The MSCI world equity index rose 0.9 percent to 301.94 points. It had hit its highest level in more than a week before Bernanke’s testimony.

U.S. stock indexes also gained, but were well off earlier highs. The Dow Jones industrial average was up 83.78 points, or 0.67 percent, at 12,498.57. The Standard & Poor’s 500 Index was up 6.17 points, or 0.47 percent, at 1,321.30. The Nasdaq Composite Index was up 6.40 points, or 0.22 percent, at 2,851.12.

China’s interest rate cut helped boost U.S. companies linked to China’s commodity-hungry industrial complex. U.S. Steel Corp climbed 1.1 percent to $20.25 percent, and miner Freeport-McMoRan Copper & Gold Inc edged up 0.6 percent to $33.87. The S&P Materials index gained 0.6 percent.

European shares closed higher, but well off an earlier peak. The FTSEurofirst 300 provisionally closed up 1 percent at 983.81, its highest close since May 29

The euro slid 0.1 percent to $1.2563 after earlier rising as high as $1.2625 on Reuters data. Against the yen, the dollar rose 0.5 percent to 79.63.

The dollar had been hindered by expectations for more easing by the Fed at its upcoming policy meeting on June 19-20, which would further depress the U.S. currency’s relative yield appeal.

“If markets were looking for some very clear signs ahead of the June policy announcement, I think they would be disappointed,” said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York. “There’s no strong commitment here to easing, and that’s why I think the dollar is a little stronger.”

CHINA’S SURPRISE CUT

China delivered twin surprises on interest rates on Thursday, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set competitive lending and deposit rates in a step along the path of liberalization.

China’s first rate cut since the global financial crisis underlined heightened concern among policymakers worldwide that the euro area’s deepening debt problems are threatening economic growth.

The decision by China’s central bank to cut benchmark rates by 25 basis points lifted oil prices on expectations that faster growth in the world’s largest energy consumer could boost demand.

Brent crude rose 21 cents to $100.43 a barrel, after rising as high as $102.45 a barrel. U.S. crude was up 14 cents at $85.16, after reaching $87.03 earlier.

Gains in the U.S. dollar pressured gold. Spot gold was down at $1,587.69 an ounce.

U.S. Treasuries prices erased losses after Bernanke’s comments. The benchmark 10-year U.S. Treasury note was up 1/32, with the yield at 1.6575 percent.

The better tone in the markets allowed Spain to sell 2.1 billion euros of fresh debt on Thursday, just days after the country’s Treasury minister warned that access to the credit markets was under threat.

Yields initially fell 10 basis points on Spain’s existing 10-year bonds after the auction to 6.2 percent. (Additional reporting by Chuck Mikolajczak and Gertrude Chavez-Dreyfuss; Editing by Leslie Adler)

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