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Wall Street, bond prices jump as markets await ECB meeting

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, December 6, 2016. REUTERS/Staff/Remote

By Sinead Carew

NEW YORK (Reuters) - U.S. stocks jumped to record levels and bond prices climbed on Wednesday as investors prepared for the European Central Bank to signal an extension of its bond-buying at its Thursday meeting.

The euro gained against the dollar as investors also waited for possible indications on when the ECB will begin paring bond purchases under its quantitative easing program.

Such a move might propel bond yields around the world higher. Prices on longer-dated U.S. Treasuries rose Wednesday after disappointing overseas data hurt optimism about global growth.

"The market does not have a lot of clarity on what the ECB would do tomorrow," said Jeffery Elswick, director of fixed income at Frost Investment Advisors in San Antonio, Texas.

The S&P 500 and Dow indexes hit records, with the biggest percentage increases coming from the telecommunications (.SPLRCL) and REIT (.SPLRCREC) sectors, heavy dividend payers.

"There's a little bit of a bond market rally going on, certainly in the long end, so that means dividend stocks feel better," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. "People are short-covering ahead of the ECB announcements tomorrow. Lower rates on the continent (are) constructive for growth and good for equity."

Healthcare (.SPXHC) was the sole S&P laggard after President-elect Donald Trump said in an interview he would bring down drug pricing.

"I think it is a new fact of life, going forward, that fundamentals can be swept aside any day by comments from the (President-elect)," said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.

The Dow Jones industrial average (.DJI) rose 297.84 points, or 1.55 percent, to 19,549.62, the S&P 500 (.SPX) gained 29.12 points, or 1.32 percent, to 2,241.35 and the Nasdaq Composite (.IXIC) added 60.76 points, or 1.14 percent, to 5,393.76.

Oil prices fell on bearish U.S. petroleum inventory data and doubts that production cuts promised by Organization of the Petroleum Exporting Countries (OPEC) and Russia would be enough to drain a global crude glut.

Brent crude (LCOc1), the international benchmark, settled down 93 cents at $53 a barrel while U.S. light crude (CLc1) settled down $1.16 at $49.77 a barrel.

The euro (EUR=) edged up 0.4 percent to $1.076. The dollar (.DXY) fell 0.3 percent against a basket of six major peers, as investors looked to next week’s U.S. Federal Reserve meeting. The Fed is expected to raise interest rates but adopt a cautious tone on the economy.

The benchmark 10-year Treasury note yield was down 5 basis points from late Tuesday at 2.342 percent. It had reached 2.492 percent on Dec. 1, the highest since July 2015.

The 30-year yield was 3.020 percent, down 6 basis points, on track for the biggest one-day drop since Aug. 29 when it fell 7.9 basis points, according to Reuters data.

Earlier, the pan-European STOXX 600 index (.STOXX) rose 0.9 percent while Italy's FTSE MIB share index (.FTMIB) gained 2 percent, helped by banking stocks.

Shares in Monte dei Paschi, Italy's oldest bank, rose 10.8 percent (BMPS.MI) after Reuters reported on Tuesday that Italy was preparing to take a 2-billion-euro controlling stake in the bank after Prime Minister Matteo Renzi resigned because voters rejected his reform proposals.

(Additional reporting by Richard Leong and Karen Brettell in New York, Yashaswini Swamynathan in Bengaluru, Nigel Stephenson in London, Hideyuki Sano in Tokyo and John Geddie, Jemima Kelly, Christopher Johnson in London; Editing by Nick Zieminski and Meredith Mazzilli)