Thu Mar 31, 2011 2:58pm EDT
* Oil, grains jump, seen feeding inflation down the road
* Crude up 24 pct for quarter — best performing asset
* Euro rises as ECB sticks to rate hike plan (Recasts with surge in commodities; updates quotes andprices)
By Barani Krishnan NEW YORK, March 31
(Reuters) – Stocks on major worldmarkets headed for their third straight quarter of gains on Thursday and commodities surged, feeding inflationary pressure that could boost equities further.
Global stocks, as measured by the MSCI All-Country WorldIndex .MIWD00000P US, hit three-week highs and were poised to close the first quarter up 4.0 percent. The index rose 0.2 percent and was up a total of 22 percent in the two previous quarters. On Wall Street, the Dow Jones industrial average was flat but still 7 percent higher for the quarter after gaining 18 percent in the previous six months.
In commodities, prices of wheat Wc1, corn Cc1 andsoybeans Sc1 — raw materials for bread, syrup and animal feed — rose by as much as 5 percent. U.S. crude oil CLc1 jumped 2 percent to 2-1/2 year highs. Brent crude oil was poised to finish the quarter up 24 percent as the best performing major asset. Oil prices rose as Middle East protests and Libya’sconflict kept threats to supply in focus. Grains shot up as strong demand ate into stockpiles. Analysts said they expected price pressures from commodities to channel into other markets, pushing up shares of natural resource producers.
“To see another couple of percent moves in stocks goinginto the end of the second quarter will not surprise us at all,” said Oliver Pursche, president of Gary Goldberg Financial Services, which manages over $500 million, in Suffern, NewYork. “We think commodity-related stocks such as Mosaic (MOS.N), Cliss Natural Resources and Deere (DE.N) will particularly dowell, although we could see more market volatility as the QE 2nears its June expiry,” Pursche said, referring to the Federal Reserve’s $600 billion stimulus effort, which proved to be the life blood of capital markets. Despite strong quarterly gains, Wall Street has recorded some of the year’s lightest trading over the last week asinvestors played safe by riding on winning stocks.
Prices on Thursday were little changed, with investors reluctant to make big bets before Friday’s monthly employmentreport. For more see [.N] By 2:00 p.m. (1800 GMT), the Dow .DJI was up 2.04 points,or 0.02 percent, at 12,352.65. The Standard & Poor’s 500 Index.SPX was up 0.36 point, or 0.03 percent, at 1,328.62. For the quarter, it was up 5.6 percent as of Wednesday’s close. The Nasdaq Composite Index .IXIC was up 1.23 points, or 0.04 percent, at 2,778.02 and has risen 4.7 percent in the quarter.
“I think at this point, the market deserves the bullish benefit of the doubt,” said Adam Sarhan at New York-based financial advisory Sarhan Capital. You have a nuclear threat in Japan, instability in oil-producing countries, debt panic in Ireland and other periphery countries in Europe, and yet the market doesn’t come down.”
ECB MULLS RATE HIKE
The euro rose on expectations the European Central Bank will raise interest rates in April despite the euro zone debt crisis, which intensified on Thursday. [ID:nLDE72U17E][ID:nWLA6919] [USD/] Portugal’s budget deficit reached 8.6 percent of gross domestic product in 2010, above a target of 7.3 percent agreed with the EU. The yield premium investors demand to hold Portuguese bonds rather than benchmark German bonds rose to 508 basis points, 12 bps wider on the day, as the country’s 10-year yields PT10YT=TWEB hit 8.476 percent. Despite the financial mess faced by some nations, the ECB has signalled it could raise rates next week to curb inflation, a message that has kept the euro strong against other currencies. The yen fell to a 10-month low of 117.90 versus the euroand hit a three-week trough of 83.21 against the U.S. dollar as expectations grew that Japan would lag the euro zone and U.S.central banks in raising rates. So far this year, the euro hasrisen nearly 8.0 percent against the yen.
[USD/] In the bond market, U.S. Treasuries prices rose after U.S.data showed weekly jobless claims fell a bit less thanexpected. There was some flight-to-safety bid as Portuguesegovernment bond yields rose. [US/]