European shares and the single currency rose on Friday as signs emerged of progress toward a deal to tackle Europe's debt crisis, and as investors positioned for a key speech from US Federal Reserve Chairman Ben Bernanke later in the day.
US stock index futures pointed toward solid gains on Wall Street ahead of Bernanke's address to the annual Jackson Hole meeting of central bankers, due at 16:00 SA time, which is being closely watched for hints on further monetary policy easing.
A steady stream of surprisingly good economic data on the giant US economy over the past week in areas such as consumer spending, housing, inflation and employment had raised questions over whether more stimulus is warranted.
But as riskier assets fell on fading hopes of action, more buyers have emerged as investors began to reassess the prospects that Bernanke might signal an easing.
“Expectations have been pared back from one week ago and the risk/reward is shifting back towards a potential positive surprise,” said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets.
The euro recovered from a weak start to hit an eight-week high of $1.2595 against the dollar on Friday ahead of the speech, which could push the US currency lower if Bernanke signals more monetary easing may be imminent.
ECB ACTION
Meanwhile, European stocks extended their gains around midday on Friday, reversing earlier losses in thin markets, after comments from an ECB official rekindled expectations of bold action from the central bank to fight the debt crisis.
The FTSEurofirst 300 index of top European shares was up 0.8 percent at 1,086.58 points, while the euro zone's blue chip Euro STOXX 50 index index was up 1.4 percent at 2,438.24 points.
The gains came when ECB Executive Board member Benoit Coeure said the bank would do everything in its mandate to preserve the euro - a line similar to President Mario Draghi's comment in late July, which spurred a big rally in riskier assets.
The ECB was studying ways of intervening in the short-term bond market based on strict conditionality and the countries concerned agreeing to aid programmes with the euro zone bailout funds, Coeure said.
German ECB policymaker Joerg Asmussen also indicated late on Thursday that he was less opposed to the bond buying plan but said the ECB should only buy sovereign bonds if the International Monetary Fund was involved in setting the economic reform programmes that should be demanded in return.
MSCI's world equity index joined in the gains, rising 0.3 percent to 321.38 points, though it has shed about 1 percent this week on signs global economic activity is gradually slowing, even as the fragile US recovery gathered some strength.
Final details of the plan, which still faces stiff opposition from the German Bundesbank, are only expected to emerge at an ECB policy meeting on Sept. 6.
However, as hopes of decisive action rose on Friday, German debt prices eased, sending 10-year Bund yields up 7 basis points to 1.39 percent.
Spanish 10-year government bond yields also rose 11 basis points to 6.73 percent, while equivalent Italian yields were unchanged at 5.78 percent.
OIL GAINS
In commodity markets Brent crude was trading above $113 a barrel and heading for its second monthly gain, supported by the renewed hopes of more monetary easing from the Fed that could spur economic growth and support oil demand.
There is also some concern about oil supplies as tension is rising again over Iran's nuclear programme.
A U.N. report said on Thursday that Iran had doubled the number of uranium enrichment centrifuges it has in an underground bunker, despite Western pressure and the threat of an Israeli attack.
Brent crude was up 57 cents at $113.22 a barrel, while US crude added 38 cents to $95.00.
Gold was a little firmer on Friday, holding near a 4-1/2 month high hit earlier this week at $1,655.40 an ounce.
Bullion, which is on track for its third straight month of gains, is seen as a hedge against inflation and would be expected to rise if Bernanke does hint at a resumption of cash printing to boost growth.
“If Bernanke disappoints, then we could see a slight sell-off, but I am not looking at gold to fall violently,” said Phillip Futures analyst Lynette Tan.
Spot gold was up 0.2 percent at $1,659.26 an ounce at 13:37 SA time, while US gold futures for December delivery were up $5.00 an ounce at $1,662.10. - Reuters