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Gross' Pimco exit hits bonds; U.S. GDP data lifts stocks, dollar

By Caroline Valetkevitch
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Traders work on the floor of the New York Stock Exchange

Traders work on the floor of the New York Stock Exchange September 22, 2014. REUTERS/Brendan McDermid

By Caroline Valetkevitch

NEW YORK (Reuters) - High-profile investor Bill Gross's departure from Pimco shook the bond market on Friday, while world stock markets and the dollar rose following data showing the U.S. economy grew at its fastest pace in more than two years in the second quarter.

News that Gross, a Pimco co-founder who managed the $222 billion Pimco Total Return Fund, will be joining Janus Capital Group pressured short- and intermediate-dated U.S. Treasuries prices as it spurred concerns that Pimco may have to sell Treasuries if investor redemptions increase.

It also drove down shares of German insurer Allianz , the parent of Newport Beach, California-based Pimco. Allianz shares tumbled 6.2 percent, wiping roughly 3.75 billion euros ($4.77 billion) from the group's market value. Shares of Janus Capital ended up 43 percent at $15.89, the stock's best one-day advance in its history.

"This news of Gross's departure is gigantic," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York. "People are concerned that Pimco is going to have to liquidate, so there is some pre-selling going on ahead of the fact that they may have to do some selling."

In a bullish signal for the rest of the year, the U.S. Commerce Department reported the U.S. economy grew at its strongest rate in 2-1/2 years during April, May and June.

The Dow Jones industrial average <.DJI> rose 167.35 points, or 0.99 percent, to 17,113.15, the S&P 500 <.SPX> gained 16.86 points, or 0.86 percent, to 1,982.85 and the Nasdaq Composite <.IXIC> added 45.45 points, or 1.02 percent, to 4,512.19.

"The bottom line is that the outlook is still very solid, so it isn't unusual to see (stock) traders come back in," said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston.

Among the day's big gainers, shares of Yahoo Inc and AOL Inc jumped after Starboard Value LP urged a strategic combination of the companies. Yahoo shares rose 4.4 percent to $40.66, whiles AOL gained 3.7 percent to $44.55.

For the week, all three major indexes fell at least 1 percent. It was the worst week for all three since the week ended Aug 1.

MSCI's global share index <.MIWD00000PUS> was last up 0.2 percent, turning higher late in the U.S. trading session. European shares <.FTEU3> ended up 0.3 percent. The MSCI emerging stocks index <.MSCIEF> was down 0.1 percent.

The dollar posted an 11th straight week of gains against a basket of major currencies, extending the longest winning streak since its 1971 free float under President Richard Nixon.

The dollar index <.DXY> added 0.5 percent and hit a four-year peak of 85.655.

The dollar has been driven higher by the divergent monetary policy outlooks between the U.S Federal Reserve's contemplating a rate hike and the ECB and Bank of Japan mulling further stimulus.


U.S. 10-year Treasury notes were last down 5/32 in price to yield 2.53 percent, from 2.51 percent late Thursday.

Italian and Spanish 10-year bond yields also rose after the news on Gross. Pimco has large investments in euro zone peripheral debt.

Italian 10-year bond yields rose 4 basis points to 2.40 percent, while equivalent Spanish yields rose 5 bps to 2.20 percent. Both remained close to their record lows.

In the energy market, U.S. oil prices rose following the U.S. GDP data. U.S. November crude rose $1.01 to settle at $93.54 a barrel.

Brent crude futures ended flat as improving supply and concerns about tepid demand for oil in Europe and China offset concerns about the Middle East conflicts. Brent for November delivery settled unchanged at $97 a barrel.

Gold fell as a dollar-driven rally dimmed bullion's investment appeal. Spot gold was down 0.6 percent at $1,214.67 an ounce.

(Additional reporting by Sam Forgione and Ryan Vlastelica in New York; Editing by Meredith Mazzilli, Catherine Evans and Dan Grebler)