Investors swooped back into world stocks on Thursday after a mildly encouraging U.S. jobs report dulled fears of recession for now, although credit markets faced strains similar to those that preceded the 2008 credit crisis.
U.S. stocks rallied more than 4 per cent, picking up steam late in the day and recovering the previous day's losses. Shares have whip-sawed throughout the week and the broad S&P 500 is down about 14 per cent from its 2011 closing high set on April 29.
However, Toronto's resource-heavy stock market showed a net gain over the last five volatile trading sessions.
"It's a bungee cord market. We've fallen off of a small bridge, the bungee cord bounced us up, and oscillations will diminish, but we're still bouncing around," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Ore.
Gold and the Swiss franc – which have soared as investors shied away from risk – both fell. However, each had additional factors influencing their lack of appeal.
Gold saw its biggest daily loss in more than a year on profit-taking and an increase in trading margins. Gold futures fell 2 per cent to $1,748 (U.S.) an ounce.
The Swiss franc tumbled against the U.S. dollar and euro after the Swiss National Bank said it could ease monetary policy further. Markets focused on the possibility of a temporary peg between the franc and the euro to rein in a soaring currency.
The sanguine view in the equity market contrasted with nervousness in the short-term funding markets.
The London interbank offered rate, Libor, on three-month dollars, the benchmark rate for $350-trillion worth of financial products worldwide, reached fresh four-month highs.
The U.S. Treasury sold $16-billion worth of 30-year long bonds at a poorly received auction, with investors showing the weakest overall demand in 2-1/2 years and foreigners largely steering clear.
In the open market, the 30-year bond lost 5 points in price immediately after the auction results. The benchmark 10-year note suffered along with 30-year bonds. It last yielded 2.32 per cent, up from 2.14 at Wednesday's 10-year auction.
The MSCI world equity index gained 2.9 per cent.
The Dow Jones industrial average gained 423.37 points, or 3.95 per cent, at 11,143.31. The Standard & Poor's 500 Index was up 51.88 points, or 4.63 per cent, at 1,172.64. The Nasdaq Composite Index was up 111.63 points, or 4.69 per cent, at 2,492.68.
In Toronto, the S&P/TSX Composite Index surged 340.91 points, or 2.79 per cent, to 12,539.80. The index has gained 1.29 per cent over the last five trading sessions, which saw violent swings.
On Thursday, both U.S. and European stocks reversed course after steep losses the previous day. The U.S. data and corporate results provided a respite from overnight fears about the health of the euro zone banking system.
Earlier, markets were on edge after banking sources told Reuters that one bank in Asia had cut credit lines to major French lenders while others in the region were reviewing trades and counterparty risks due to concerns about the exposure of French banks to peripheral euro zone bonds.
U.S. initial claims for state unemployment benefits fell last week to the lowest level since early April. Analysts said one week was not enough to show definitive improvement in the struggling labour market, but the better-than-expected data was a welcome surprise.
"Had we seen a jump [in claims]it would have reinforced recession fears. What we've seen here is not anything to allay those fears, but just to set them aside temporarily," said Bucky Hellwig, senior vice-president at BB&T Wealth Management in Birmingham, Ala.
The anemic pace of U.S. first-half growth has fuelled worries of another recession, and analysts are watching for signs the recovery could pick up steam in the rest of 2011.
The MSCI world equity index gained 2.4 per cent, changing course after early losses, and the pan-European FTSEurofirst 300 closed up 2.7 per cent.
Wall Street was also boosted by a surge in Cisco Systems, up nearly 16 per cent the day after it forecast a modest increase in current-quarter revenue.
Legendary investor Warren Buffett told Fortune magazine he has been buying during this week's sharp market declines and has not yet seen anything that suggests another downturn.
Société Générale SA, at the centre of Wednesday's storm that took its shares down more than 20 per cent at one point, rose 3.7 per cent, while BNP Paribas SA edged up 0.3 per cent.