Global stocks rally on ECB stimulus bet; dollar gains

By Herbert Lash

NEW YORK (Reuters) - Global equity markets rallied on Monday, with the U.S. benchmark S&P index topping the 2,000 mark for the first time, as expectations grew that the European Central Bank would move to boost economic growth if inflation slows further.

The euro fell to near a one-year low against the dollar and yields on euro zone government debt fell to historic lows as investors surmised that ECB President Mario Draghi would soon use all available tools to foster growth.

In a speech to central bankers on Friday in Jackson Hole, Wyoming, Draghi hinted at a major shift in policy from a focus on austerity toward reviving growth.

Speculation grew that the ECB was preparing a program of asset purchases to counter wilting inflation when it meets next week, driving yields on bonds from Germany, France, Italy, Spain, Portugal, Ireland and elsewhere to all-time lows.

European stocks surged, with many country and regional indexes climbing more than 1 percent. The S&P also rose in a broad rally as advancing volume outpaced declining volume by about 2 to 1. After topping the milestone, the index closed below 2,000, but still at a record closing high.

On a total-return basis, the S&P 500 has more than tripled from its 2009 low hit during the financial crisis.

"European investors came in today with the mindset that we're going to have a more supportive fiscal and monetary policy stimulus, and therefore we ought to see better times ahead in terms of economic growth and corporate earnings," said Phil Orlando, chief equity market strategist at Federated Investors, in New York. "Europe is essentially driving the U.S."

The Dow Jones industrial average closed up 75.65 points, or 0.44 percent, to 17,076.87. The S&P 500 rose 9.52 points, or 0.48 percent, to 1,997.92 and the Nasdaq Composite added 18.80 points, or 0.41 percent, to 4,557.35.

In Europe, the FTSEurofirst 300 index of top regional shares rose 1.13 percent to close at 1,366.61. The London stock market was closed for a public holiday.

MSCI's all-country world index gained 0.5 percent.

The benchmark 10-year U.S. Treasury note rose 5/32 in price to yield 2.3856 percent as European debt also rallied. The 10-year German bund hit a record low of 0.926 percent, before pulling back to yield 0.948 percent.

The dollar rose as the euro dropped on weak German economic data and Draghi's comments.

The euro skidded against the dollar to a low of $1.3184 at one point on news that Germany's Ifo business climate index fell to 106.3 from 108, its lowest in 11 months. The euro was last trading at $1.3193, down 0.37 percent on the day.

Brent crude traded just below $103 a barrel, while ample supply and weak demand dampened prices for U.S. crude.

Brent crude rose 36 cents to settle at $102.65 while U.S. crude settled down 30 cents at $93.35 a barrel.

(Reporting by Herbert Lash; Additional reporting by Francesco Canepa in London; Editing by Dan Grebler and James Dalgleish)