Global stocks rose on Friday as traders took on riskier investments following a Libya ceasefire that reduced tension in the region, and after several central banks intervened to stabilize the yen.
Trading capped a week of extreme volatility marked by Wall Street's gauge of anxiety, the VIX, which on Thursday soared to its highest level since July. Stock market volumes surged on down days and fell on up days.
Although Wall Street finished Friday's session higher, all three major U.S. stock indexes ended the week in the red. The benchmark S&P 500 lost 1.9 percent, its biggest weekly decline since November.
World shares as measured by the MSCI <.MIWD00000PUS> advanced 0.6 percent. That gain helped the index erase some of its 5.6 percent drop over the past six trading days and brought the index near even for 2011.
Oil fell from earlier highs after Libya declared a ceasefire in the country to protect civilians and comply with a United Nations resolution passed overnight. It had surged after the U.N. Security Council endorsed a no-fly zone for Libya, and authorized all necessary measures to protect civilians against Gaddafi's forces.
That (Mideast unrest) quieting down and Japan quieting down will lead to buying, said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
Brent crude had jumped above $117 a barrel on worries of escalating unrest in oil-rich countries after the U.N. action to contain Libya's Muammar Gaddafi.
Brent for May delivery dropped to around $114 after the ceasefire was declared; the contract settled at $113.93 a barrel, down 97 cents. U.S. crude fell 35 cents to end at $101.07 a barrel.
The dollar climbed 2.6 percent to 80.86 yen, retreating from a session high of around 82 yen, following the G7 announcement to intervene to stop the currency's sharp rise in recent days.
The show of solidarity by the G7 major developed economies to support Japan through its biggest crisis since World War Two comes a day after the yen soared to a record 76.25 per dollar in chaotic trading. It is the first coordinated currency intervention by the G7 in a decade.
The G7 is just helping sentiment, and stocks sensitive to risk will push on. But optimism is going to be guarded as there are no firm resolutions surrounding the Japanese nuclear crisis and the Middle East, and anything can happen on the weekend, said Giles Watts, head of equities at City Index in London.
WALL ST BUOYED BY NIKKEI AND BANKS
On Wall Street, stocks held gains but pulled back from session highs due to caution before a long weekend in Japan, where markets will be closed on Monday for a holiday.
Japan's Nikkei share index <.N225> climbed 2.7 percent, recouping some of the week's losses as Japan reeled from the aftermath of an earthquake, tsunami and nuclear power plant crisis.
The Dow Jones industrial average <.DJI> gained 83.93 points, or 0.71 percent, to end at 11,858.52. The Standard & Poor's 500 Index <.SPX> added 5.49 points, or 0.43 percent, to 1,279.21. The Nasdaq Composite Index <.IXIC> rose 7.62 points, or 0.29 percent, to close at 2,643.67 -- well off its session high of 2,665.56.
The Dow industrials climbed as high as 11,927.09 and swung nearly 150 points from that peak to the session low, reflecting the market's volatility that could be tied in part to quadruple witching.
Friday marked the end of the two-day quadruple witching period. Quadruple witching is the expiration and settlement of March stock-index futures, single-stock futures, equity options and stock-index options.
Financial stocks rose after the Federal Reserve notified some of the largest U.S. banks that they passed a second round of stress tests. The central bank said it would let some of those banks use some of their massive capital cushions to buy back shares, repay the government and boost dividends.
JPMorgan Chase & Co
There's a lot of bad things going on in the world right now and if (the Fed) can show the big American banks are doing pretty well, that is a good thing to show, said Frank Bonaventure, a partner at Ober Kaler in Baltimore and former counsel for the Office of the Comptroller of the Currency.
Industrial shares also rose on bets they could benefit in Japan's rebuilding effort. General Electric Co
Before the start of U.S. trading, European equities pared earlier gains after China's central bank raised lenders' required reserve ratios. The FTSEurofirst 300 <.FTEU3> rose 0.2 percent to close at 1,088.82.
YEN AND BONDS DROP, GOLD GAINS
The euro rose 3.4 percent to 114.50 yen, after climbing to a session high of 115.56 yen earlier. Some traders noted the scale of intervention was so far a tame effort to stem the yen's surge.
The euro rose to a four-month high against the dollar of about $1.4184 after the euro/yen intervention.
Some market observers said even massive official selling might not restrain the yen for long, pointing to Japan's last intervention in September 2010 when it sold a huge 2.1 trillion yen, or around $25 billion worth, but only managed to push the dollar up to 85.77 yen from 82.85 yen.
It would need to be concerted and aggressive ... and even then I'm skeptical, said Richard Wiltshire, a currency trader at ETX Capital in London.
A New York Federal Reserve spokesman said the U.S. central bank had joined the G7 in intervening to weaken the yen.
Demand for the safety of government debt waned.
The price of the benchmark 10-year U.S. Treasury note dipped 3/32, nudging its yield up 0.01 percentage point to 3.27 percent.
Gold rose $16.09 to $1,418.40 an ounce, but was off a record high of around $1,444 reached last week.
(Additional reporting by Anirban Nag, Joanne Frearson and Chris Reese, Richard Leong, Edward Krudy, Chuck Mikolajczak, Steven C. Johnson, Emily Flitter and Emelia Sithole-Matarise; Writing by Al Yoon; Editing by Jan Paschal)