Euro headed for worst week of year; earnings boosts stocks

By Stephanie Kelly

NEW YORK (Reuters) - The euro was on track for its worst week in 2017, undermined by the Catalan parliament's independence vote and the European Central Bank's decision to prolong its bond purchases to keep interest rates low, while robust corporate earnings helped world equity markets advance.

The benchmark U.S. S&P500 index <.SPX> was up 0.8 percent late Friday, on track for it's biggest one day gain since Sept. 11 this year.

The Catalan parliament's declaration of independence from Spain, made after a secret ballot, is now likely to be ruled illegal by Spain's constitutional court.

"There's no doubt that Catalonia, the issue has been weighing on the euro," said Quincy Krosby, chief market strategist at Prudential Financial in New Jersey.

 

Stronger-than-expected U.S. third-quarter GDP data helped bolster the dollar. The U.S. economy grew at a 3.0 percent annual rate from July to September, showing resilience even as recent storms hurt consumer spending.

The euro had its worst day against the U.S. dollar in 16 months on Thursday after the European Central Bank said it would cut its bond purchases in half to 30 billion euros a month from January, maintaining an easy money policy well into next year.

"The dovish surprise from the ECB was its openness to extend the duration of its bond purchase program," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington.

The U.S. dollar index <.DXY>, which measures the greenback against a basket of major currencies, rose 0.41 percent, with the euro > down 0.56 percent to $1.1585.

Gains in the dollar were pared briefly after a Bloomberg report that said U.S. President Donald Trump was leaning toward Federal Reserve Governor Jerome Powell as the next U.S. central bank chairman. Powell is seen likely to maintain the Fed's current monetary policy.

U.S. Treasury note yields remained lower, following the Catalan news and the Bloomberg report.

Benchmark 10-year notes > last rose 7/32 in price to yield 2.4301 percent, from 2.454 percent late on Thursday.

The 30-year bond > last rose 13/32 in price to yield 2.9397 percent, from 2.961 percent late on Thursday.

Gold prices edged higher on Friday, after the Catalonian parliament's independence declaration from Spain led investors to seek safety from political upheaval. Spot gold > added 0.3 percent to $1,271.02 an ounce.

EARNINGS

MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 0.44 percent.

On Wall Street, gains were led by robust corporate earnings and the third-quarter GDP growth, both of which lifted investor sentiment.

"In many ways, we're seeing the strong getting stronger," said Eric Wiegand, senior portfolio manager at the Private Client Reserve at U.S. Bank in New York.

"While valuations are full, it certainly becomes imperative on them to deliver solid operating results and that's something that we did see."

The Dow Jones Industrial Average <.DJI> rose 29.99 points, or 0.13 percent, to 23,430.85, the S&P 500 <.SPX> gained 20.38 points, or 0.80 percent, to 2,580.78 and the Nasdaq Composite <.IXIC> added 143.84 points, or 2.19 percent, to 6,700.61.

Google-parent Alphabet gained 5.5 percent and Microsoft advanced 7.1 percent, which drove up the S&P technology index <.SPLRCT>. The sector has surged about 30 percent this year, twice the advance in the broader S&P index.

Healthy results also helped Amazon rise 13.4 percent.

Chevron weighed on the Dow, with its shares dropping 4.2 percent after missed profit estimates.

Spain's IBEX <.IBEX> was the worst-performing major index on the day, losing 1.5 percent after the Catalan declaration. The gap between Spanish and German 10-year government bond yields also widened 8 bps to 120 bps. >

Europe's STOXX 600 <.STOXX> also cut gains after the vote, but closed up 0.6 percent.

European shares reached a five-month high overall on Friday, helped by strong earnings. The pan-European FTSEurofirst 300 index <.FTEU3> rose 0.54 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> closed 0.18 percent higher, while Japan's Nikkei <.N225> rose 1.24 percent.

Oil prices jumped on support among the world's top producers for extending a deal to cut output and as the dollar retreated from three-month peaks.

U.S. crude rose 2.18 percent to $53.79 per barrel and Brent was last at $60.37, up 1.8 percent on the day.

(Additional reporting by Sruthi Shankar in Bengaluru; Gertrude Chavez-Dreyfuss, Devika Krishna Kumar and Richard Leong in New York; Kit Rees, Danilo Masoni, Christopher Johnson, Julia Payne in London; Editing by Daniel Bases and Clive McKeef)