Risk assets rallied on Friday on the Federal Reserve's aggressive new plan to stimulate the U.S. economy and on progress in tackling the euro zone crisis, pushing global stocks to a 13-month high and driving the euro to a more than four-month high against the dollar.
Brent crude oil gained for a seventh straight session and hit a four-month peak, while European shares notched a 14-month high. On Wall Street, stocks started the day higher.
In bond markets, yields on 10-year Italian government bonds fell below 5 percent for the first time since late March as the Fed's announcement enhanced the recently improved sentiment toward riskier assets.
"There is a risk-on mood across the board at the moment, that (has to do with) the Fed but certainly it still echoes from the ECB," Rainer Guntermann, a strategist at Commerzbank, said.
The Fed on Thursday said it would pump $40 billion into the economy each month until the U.S. jobs market shows a sustained improvement. The aggressive action improved what was an already upbeat mood in financial markets since the European Central Bank announced plan to cut the borrowing costs of struggling euro zone members.
U.S. Treasuries prices fell as the appetite for safe-haven assets waned as investors favored assets that they believe will offer better returns. The benchmark 10-year U.S. Treasury note fell 28/32, its yield rising to 1.82 percent from 1.73 percent late on Thursday.
The Fed's new easing program also focuses on buying mortgage-backed debt at the expense of government bonds.
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European equities surged, with the pan-European FTSEurofirst 300 index rising 1.4 percent to 1121.70 points. The MSCI index of global stocks jumped 1.9 percent to 341.12 points, the highest level since August last year.
The Dow Jones industrial average was up 62.94 points, or 0.46 percent, at 13,602.80. The Standard & Poor's 500 Index was up 7.38 points, or 0.51 percent, at 1,467.37. The Nasdaq Composite Index was up 20.43 points, or 0.65 percent, at 3,176.26.
The S&P 500 marked its highest close since December 2007 on Thursday after the Fed's announcement of new bond purchases.
Euro zone finance ministers were meeting in Cyprus on Friday, hoping to build on progress the bloc has made this month, following the plans announced by ECB President Mario Draghi and a German court's green light this week for the euro zone's new ESM bailout fund.
Spain was being pressed to clarify whether it would seek the financial support which would clear the way for the ECB to buy its bonds. Questions remain whether Madrid could be tempted by the recent drop in its borrowing costs to tough it out without a politically unpopular EU bailout program.
Dollar weakness
The dollar index measured against a basket of currencies fell to its lowest level in over four months at 78.729 in the wake of the Fed's move. Quantitative easing equates to printing money and dilutes the value of the dollar.
The dollar's broad decline left the euro at a four-month high above $1.31, the latest in a string of technical and psychological levels it has cut through this week.
"With Europe getting their act together (at least temporarily), the Fed flooding the market with cash, and China talking (about) stimulatory infrastructure projects, the three largest influences of market dynamics could be creating a bull market for at least the near term," said Neal Gilbert, currency strategist at GFT Forex.
Brent rose $1.37 to $117.25 a barrel by 1353 GMT, after reaching a four-month peak of $117.95 earlier. The global North Sea benchmark was on track to end the week up more than 2 percent.
U.S. crude rose $1.31 to $99.62 a barrel after hitting a four-month high of $100.42. It was set to close the week up 3 percent.
"The Fed will be indirectly adding more liquidity into the asset markets and that money will need to go somewhere and part of it will go into commodities, even if current commodity prices are already at demand destruction levels," said Olivier Jakob, at Petromatrix in Zug, Switzerland.
Base metals also rallied. Aluminium, copper, lead and zinc all jumped between 3 and 5 percent on hopes the Fed's move would bolster global demand for manufacturing and building materials.
Gold rose to a 6-1/2-month high of $1,777.51 an ounce, putting it on course for a fourth straight week of rises and extending Thursday's 2 percent gain.
Italian appetite
Demand for German government bonds and U.S. treasuries, typically favored by investors seeking lower risk, extended recent falls.
Ten-year Italian yields fell below 5 percent for the first time since March 26 and were down 6 basis points on the day at 4.97 percent. Equivalent Spanish yields shed 3.5 bps to 5.64 percent.
"Five percent (Italian yield) is certainly eye-catching but the key level from a technical point of view is 4.7 so we still have to be cautious here," said Piet Lammens at KBC in Brussels.
Analysts are now wondering whether the positive momentum can be sustained. "In the next weeks or months it is not so easy to see what is going to drive the markets up further," said Heinz-Gerd Sonnenschein at Postbank in Frankfurt.
"The fundamentals will be back in focus," he said.
The U.S. government said U.S. retail sales rose 0.9 percent in August, boosted by auto sales and high gasoline prices, but the underlying tone pointed to modest growth in the third quarter. Meanwhile, consumer prices rose 0.6 percent as the cost of gasoline rose.