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Soothing Fed sounds send stocks to five-week high

[June 07, 2016] By Marc Jones

LONDON (Reuters) - World stocks hit their highest in five weeks on Tuesday as a dovish tone from Janet Yellen cooled near-term U.S. rate hike bets and a 2016 peak in crude prices cheered oil firms.

European stocks were up 1.2 percent ahead of U.S. trading where Wall Street's S&P 500 was expected to hit a fresh seven-month high when it resumes.

The gains came after the Fed chief Yellen on Monday had called last week's U.S. jobs numbers disappointing and opted not to repeat her message that U.S. interest rates could rise again in the coming months.

That was balanced, however, by her cautioning against attaching too much significance to the payrolls data in isolation and as she pointed to other more upbeat signals for the world's largest economy.

"Yellen has certainly put paid to a rate rise in June but there’s more going on here than that," said Aberdeen Asset Management's Luke Bartholomew.

"Her message really is that the U.S. is making consistent progress towards full employment, that inflation should pick up and there’s more positives than negatives. This should give those hoping for a July rate rise some modicum of solace."

With the Fed suggesting it was in no rush to increase interest rates, bond yields slipped with 10-year U.S. Treasury yields retreating to 1.72 percent from 1.84 percent last week. Benchmark yields are down 63 basis points so far this year.

Key European bonds barely moved with German Bunds already near all-time lows thanks to the European Central Bank's unprecedented stimulus efforts.

In the FX markets, Yellen's comments also kept the dollar pinned near a one-month low against other top currencies.

The Australian dollar <AUD=D4> meanwhile jumped 1 percent after the Reserve Bank of Australia appeared to raise the bar for further rate cuts.

Sterling climbed 0.9 percent to $1.4575 as jostling continued over Britain's June 23 vote on its European Union membership, while the Swiss franc hit its highest in over a month ahead of an expected enforced conversion of franc mortgage loans in Poland.

Earlier on Tuesday, Japanese Finance Minister Taro Aso told reporters that he would refrain from commenting on Japan's possible response in the currency market if the yen, which has surged since November. were to rise further.

Aso declined to comment on U.S. Treasury Secretary Jack Lew's remark over the weekend that described recent currency market moves as "orderly" in a sign of caution toward currency intervention.

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A businessman is reflected in an electronic board displaying Japan's Nikkei share average outside a brokerage in Tokyo, Japan, April 18, 2016. REUTERS/Toru Hanai

OIL ON THE BOIL

Elsewhere, Brent oil prices climbed above $51 a barrel after crippling attacks on Nigeria's oil industry and data showing fresh draw downs in U.S. crude stockpiles.

Global crude benchmark futures, which have now surged more than 50 percent this year, hit a new seven-month high of $51.14 per barrel as U.S. West Texas Intermediate (WTI) crude topped $50, after rising 2.2 percent on Monday, its largest gain in three weeks.

Nigeria's Bonny Light crude output is down by an estimated 170,000 barrels per day (bpd) following attacks on pipeline infrastructure, according to one Reuters industry source.

Metals markets were a touch lower too but have also been signaling lately that the worst of the commodities rout may be over.

Three-month copper on the London Metal Exchange had slipped 0.7 percent to $4,656.50 a ton after it had hit its highest in four weeks while zinc, another key industry metal, was at its highest in almost a year. [MET/L]

"This week's rally continues to be supported by a weaker USD and falling inventories. However, investors will remain cautious leading into the release of China's trade data tomorrow," ANZ said in a note.

(Reporting by Marc Jones; Editing by Angus MacSwan)

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