World stocks advanced on Thursday, boosted by a rosier U.S. economic outlook and rising European bank shares, while the euro struggled versus the U.S. dollar on concerns that the euro zone debt crisis will only continue to intensify.
The benchmark U.S. stock index rose for a third straight day after government data showed new claims for unemployment benefits dropped to their lowest in more than 3-1/2 years, and stronger business investment pointed to a pick-up in output in the current quarter.
U.S. consumer sentiment improved in December to its highest level in six months.
This is supportive of the fact that the economy is gaining momentum and that the fourth quarter will be much better than people were expecting even just a month ago, said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Global Investments.
Banks were among the top performers in European and U.S. equity markets. Traders said the European Central Bank's cheap loans to lenders would help ease their funding strains.
The STOXX Europe 600 Banks index closed up 2.0 percent and the benchmark FTSEurofirst 300 <.FTEU3> added 1 percent.
The S&P financial sector <.GSPF> added 2.05 percent.
After the closing bell in New York, the Dow Jones industrial average <.DJI> gained 61.91 points, or 0.51 percent, to 12,169.65. The S&P 500 Index <.INX> added 10.28 points, or 0.83 percent, to 1,254. The Nasdaq Composite <.IXIC> rose 21.48 points, or 0.83 percent, to 2,599.45.
Global stocks as measured by MSCI rose 0.7 percent, still on track for a fall of about 10 percent in 2011.
Analysts said the European Central Bank's first-ever tender of ultra-cheap three-year loans on Wednesday was not giving much support to the euro. Doubts remained over how much of the funds will be lent to boost the ailing euro zone economy or used to buy sovereign debt of struggling economies as banks deleverage and cut back exposure to government bonds.
European leaders are not fixing the crisis and they are not doing the things necessary to fix it, said Paul Dietrich, chairman and chief investment officer at Foxhall Capital Management in Orange, Connecticut.
They talk, but they're not backing up the talk with anything like what we did in the United States. And it's not the
sovereigns that is causing this crisis, but the banks themselves.
The euro edged up less than 0.1 percent to $1.3050, off the session peak of $1.3119, according to Reuters data. It remains within a cent of a 1-month low hit last week.
The looming threat of euro zone sovereign credit rating downgrades was also keeping investors on edge through the year-end season and into 2012.
In debt markets, Italian 10-year bond yields ticked up 12 basis points to 6.933 percent after the ECB was forced to step back into the secondary market on Wednesday as yields jumped higher in the wake of the ECB's loan tender.
Yields on equivalent Spanish paper were up 12 basis points at 5.431 percent.
Euro zone debt markets are expected to come under fresh pressure with some 230 billion euros (191.5 billion pounds) of bank bonds, up to 300 billion in government bonds and more than 200 billion euros in collateralized debt all maturing in the first quarter of 2012.
U.S. Treasuries prices advanced in thin trade, benefiting from Federal Reserve purchases and concerns about the euro zone's debt problems.
Thirty-year bonds rose 10/32, their yields falling to 2.9883 percent from just over 3 percent on Wednesday.
Benchmark 10-year notes also rose 4/32 in price, with yields falling to 1.9546 percent, from 1.97 percent on Wednesday.
U.S. crude futures settled up 0.9 percent at 99.53 per barrel, rising for a fourth straight session as violence in Iraq and upcoming Iranian navy exercises raised fears of potential supply disruptions. Supportive economic data also provided a boost for oil.
Copper prices rose 1.1 percent.
(Reporting by Rodrigo Campos; Additional reporting by Ryan Vlastelica, Gertrude Chavez-Dreyfuss and Ellen Freilich; Editing by Chizu Nomiyama and Dan Grebler).