Tuesday, Jul 03, 2012

 

   By Michele Maatouk and Barbara Kollmeyer 

   Of THE WALL STREET JOURNAL 

 

European stocks rallied for a third day as hope mounted that central banks in Europe and the U.S. will act to bolster economic growth.

The Stoxx Europe 600 index closed up 1% at 257.39. The U.K.'s FTSE 100 ended up 0.8% at 5687.73, Germany's DAX closed 1.3% higher at 6578.21 and France's CAC-40 added 1% to 3271.20.

Oil prices surged, boosted by renewed tension over Iran.

As happened Monday, news of economic weakness made it seem more likely that central banks will take measures to bolster growth, underpinning stock prices as well.

Producer-price inflation in the euro zone slowed to its weakest rate in more than two years in May, while in the U.K., the construction sector shrank in June at its fastest pace in more than two years.

(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)

"Markets are factoring in a 25-basis-point rate cut from the European Central Bank, an increase in the Bank of England's bond-buying program and improved chances that the Fed will introduce QE3," a third round of quantitative easing, bond purchases meant to drive down interest rates, said Andrew Taylor, strategist at GFT.

The ECB and Bank of England are both set to announce decisions on monetary policy on Thursday. Trading is expected to be quiet on Wednesday, with U.S. markets closed for the Fourth of July holiday.

In the second half of the session, news that industrial orders in the U.S. were better than expected for May lent support, helping investors to shrug off the International Monetary Fund lowering its growth forecasts for the U.S. this year and next.

Commodity prices rose, boosting mining companies and oil stocks. In London, BHP Billiton rose 2.2% and Rio Tinto jumped more than 3%. In Paris, oil company Total rose 3%.

Shares of Barclays were volatile, initially gaining more than 2% on news that Chief Executive Robert Diamond will leave amid the bank's rate-fixing scandal. The bank has agreed to pay $453 million to settle an investigation into the matter.

Shares ended down 0.8% as investors responded to news that Chief Operating Officer Jerry del Missier, who had been seen as a potential successor to Mr. Diamond, is also stepping down.

German chemicals group BASF and Daimler, the auto maker, both rose 2.3%. Pharmaceutical group Bayer jumped 1.4%.

The euro gained ground, rising to $1.2620 from $1.2576 late Monday in New York. The dollar was trading at Y79.79, from Y79.52.

Midday in New York, light, sweet crude for August delivery was up $3.53, or 4.2%, at $87.28 on the New York Mercantile Exchange. Am army general in Iran reportedly said the country wouldn't sit "idly by" as the U.S. and Europe build a missile-defense shield program that could target Iran. Iranian authorities staged missile drills late Monday to test weapons reportedly capable of hitting targets as far away as Israel and announced possible legislation aimed at closing the Strait of Hormuz.

Gold for July delivery on Nymex's Comex division was up $26.80, or 1.7%, at $1624.

(END) Dow Jones Newswires

July 03, 2012 13:27 ET (17:27 GMT)