(Adds close of U.S. markets)
* EU seals recovery fund plan after five days of talks
* Euro hits 18-month high, DAX briefly turns positive for
year
* Virus vaccine trial results add to bullish mood
* Investors expect U.S. stimulus of more than $1 trillion
* Gold shines at 9-year high
* World FX rates in 2020 http://tmsnrt.rs/2egbfVh
By Herbert Lash and Marc Jones
NEW YORK/LONDON, July 21 (Reuters) - World shares rallied to
their highest since February and the euro hit its strongest in
18 months on Tuesday after European Union leaders agreed on a
landmark stimulus package to revive regional economies ravaged
by the coronavirus.
The agreement after five days of haggling drove down the
risk premium on European assets and pushed gold to its highest
in almost nine years. Bullion got an extra boost from a weaker
dollar and expectations of more U.S. stimulus from Washington.
The willingness to raise a 750 billion-euro ($857 billion)
fund in capital markets on behalf of all 27 EU states was an
unprecedented act of solidarity in almost seven decades of
European integration. EU summit Chairman Charles Michel presented the final plan
as a "pivotal" moment to dispel doubts about the bloc's future.
The risk of a European break-up receded and the fund should
support regional growth over the medium term, Esty Dwek, head of
global market strategy at Natixis Investment Managers, told
investors.
Germany's DAX index .GDAXI entered positive territory for
the year before paring gains to end up 0.96%. The euro EUR=
rose 0.68% to $1.1522 after touching $1.1539, its highest since
early January 2019. The single currency has gained more than 6%
in the past three months.
Europe's broad FTSEurofirst 300 index .FTEU3 closed up
0.31%. MSCI's benchmark for global equity markets
.MIWD00000PUS advanced 0.63% to highs last seen in February,
when markets crashed on coronavirus fears.
"It's a significant step towards a more integrated and
united Europe, which should boost the region's appeal to global
investors and facilitate its re-rating," said Barclays' head of
European equity strategy Emmanuel Cau.
Hopes that vaccines might be ready by year's end also backed
the risk-on sentiment and helped push Italian government bond
yields to their lowest since early March. Italy will be a main
beneficiary of the fund, as will Spain, Greece, Portugal, Poland
and Hungary, whose government bonds also rallied.
On Wall Street, the Dow Jones Industrial Average .DJI rose
0.6% and the S&P 500 .SPX added 0.17% after regaining positive
territory Monday for the year for the first time since June 8.
The Nasdaq Composite .IXIC dropped 0.81%.
The 10-year U.S. Treasury US10YT=RR note fell 1.8 basis
points to 0.602% after earlier sliding below 0.6%.
With the EU recovery plan sealed, investors will now focus
on further U.S. stimulus after $3 trillion was injected earlier
this year. U.S. congressional negotiations aimed at hammering out an
agreement on a new coronavirus aid package intensified as
COVID-19 infections and deaths surged to record levels across
the United States. Emerging markets stocks .MSCIEF surged 2.12%. Major equity
indexes have rebounded 45% off March lows, boosted by record
levels of government and central bank stimulus to cushion the
impact of COVID-19 lockdowns and large-scale unemployment.
Markets have become polarized, with investors either overly
exuberant or terrified the sky is falling, said David Kelly,
chief global strategist at JP Morgan Asset Management.
They are ignoring stretched valuations or buying 10-year
debt instruments with negative yields, he said.
"This is the day of the extremists on both sides, very much
as it is in politics," Kelly said. "The boring moderates in the
middle are probably where the value is right now rather in the
extremes of safety or exuberance."
Asian shares overnight followed a tech-led rally Monday on
Wall Street that pushed the Nasdaq to its seventh closing high
this month. The Sydney stock market .AXJO clocked its best day
in over a month with a 2.6% jump. .T
Oil prices rose more than 3% before paring some gains. Brent
crude futures LCOc1 settled up $1.04 at $44.32 a barrel. U.S.
crude futures CLc1 rose $1.15 to settle at $41.96 a barrel.
Gold, which tends to benefit from massive stimulus as the
metal is seen as a hedge against rising prices and currency
debasement, rose to an almost nine-year high. Silver breached
$20 for the first time since September 2016. GOL/
Spot gold prices XAU= rose $24.4968 to $1,839.89 an ounce.
U.S. gold futures GCcv1 settled up 1.5% at $1,843.9.
"What's really driving the gold market is stimulus and we
are going to get more of it. It's the eye candy that's driving
sentiment right now," said Stephen Innes, chief market
strategist at financial services firm AxiCorp.
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Potential allocation of EU recovery fund as share of GDP https://tmsnrt.rs/2OzVnME
World stocks and oil vs COVID-19 https://tmsnrt.rs/2CAIUpH
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