By Richard Leong
NEW YORK (Reuters) - U.S. stocks climbed to record highs Wednesday as weak data reinforced an expectation that stimulative central bank policies would continue, while evidence that Europe was stuck in recession pushed the euro to a six-week low against the dollar.
U.S. producer prices fell their most in three years in April, reinforcing expectations the U.S. Federal Reserve will continue to support the U.S. economy, while better-than-expected data on homebuilder sentiment also helped stocks.
Data showing the euro zone economy contracted for a sixth consecutive quarter in the three months through March hurt the euro, however, as it bolstered chances that the European Central Bank might cut interest rates again later this year, analysts said.
The expectation that the Fed and ECB will continue with their stimulative policies offset an early dip in U.S. stock prices and lifted European shares to fresh multi-year highs. It also briefly revived safe-haven bids for U.S. Treasuries and German Bunds, but demand for the latter tapered off with the surge in U.S. stocks.
"It's disconcerting that the data was so much lower than what we were looking for, but there's no reason for investors to sell," said Michael Binger, senior portfolio manager at Gradient Investments in Minneapolis. "The main things driving the market - the Fed, earnings, consumer confidence - are holding up, and people put money in the market on any down day. I still see a lot of value."
The bleak news on the euro zone economy spurred worries about falling energy demand and pushed Brent futures in London below $102 a barrel.
As the euro weakened, the dollar receded from its 4-1/2-year high against the yen but held firm against other major currencies. The dollar index touched its highest level since July.
The strengthening dollar further reduced investor holdings in gold, which fell 2 percent to a three-week low of $1,396.50 an ounce, stretching losses into a fifth session.
Graphics:
U.S. producer prices http://link.reuters.com/hak93t
Euro zone real GDP http://link.reuters.com/nyh28s
Growth rates since 1999 http://link.reuters.com/pyh89s
World interest rates http://link.reuters.com/gam87t
In midday trading, the Dow Jones industrial average <.DJI> was up 30.39 points, or 0.20 percent, at 15,245.64. The Standard & Poor's 500 Index <.SPX> was up 4.82 points, or 0.29 percent, at 1,655.16. The Nasdaq Composite Index <.IXIC> was up 7.98 points, or 0.23 percent, at 3,470.59.
The Dow and S&P 500 have each risen about 16 percent on the year so far, beating the broad FTSEurofirst 300 index of top company shares which has climbed about 10 percent. The performance of those indexes, however, pale against the 45-percent advance on Tokyo's Nikkei index in the year to date.
"This can continue as long as the policy remains tilted towards pushing investors at the margin towards riskier assets and that is essentially what it is," said Chris Wolfe, chief investment officer for Merrill Lynch Wealth Management Private Banking and Investment Group in New York.
In addition to the Fed buying $85 billion in bonds each month, the ECB cut its policy rate to a record low of 0.50 percentage point last week, following the Bank of Japan's $1.4 trillion stimulus plan announced in April.
Europe's FTSEurofirst 300 index of top company shares was up 0.7 percent at 1,245.41 points, a level not seen since mid-2008.
The broad gains in equity prices lifted the MSCI global index. It was last up 0.18 percent on the day at 376.95, the highest since June 2008.
In the bond market, the yield on benchmark U.S. 10-year Treasury notes fell 2 basis points to 1.959 percent after touching the highest level in seven weeks on Tuesday. The 10-year yield halved its earlier decline after a private survey showed U.S. homebuilder confidence improved more than forecast in May, suggesting the domestic housing recovery stayed intact.
German Bund futures were up 13 basis points at 144.86.
At the end of the sovereign debt spectrum, 10-year Greek bond prices surged after Fitch Ratings upgraded the country's junk credit ratings, saying reforms had reduced Greece's risk of a euro zone exit.
Attention was also on Italy's preparations to launch a new 30-year bond to follow the successful 10-year debt sale by Spain on Tuesday. Italy, the euro zone's third-biggest economy, received over 10 billion euros of orders for the new bond.
While investor appetite for the debt of these struggling euro zone members was encouraging, the 17-member block has remained in a collective doldrum, which has been a drag on its two biggest members - Germany and France.
The euro fell 0.5 percent against the dollar at $1.2853 and was off 0.5 percent against the yen at 131.68 yen.
On the other hand, the dollar steamed ahead against most other major currencies with the exception of the yen. The dollar index rose 0.4 percent to 83.957 even though the greenback slipped 0.2 percent against the Japanese currency.
The strengthening dollar continued to hurt commodities prices, as it has made dollar-denominated commodities such as oil more expensive for holders of other currencies.
In London, benchmark Brent crude fell 67 cents to $101.93 a barrel, while U.S. oil futures lost $1.16 to $93.05, declining for a fifth straight session and matching a similar losing streak in December.
(Additional reporting by Chuck Mikolajczak in New York, and Richard Hubbard, Blaise Robinson in London; Editing by Bernadette Baum)
