U.S. and European stocks and the euro rose on Thursday as encouraging U.S. economic data and a solid Spanish debt auction reduced fears that the euro zone debt crisis could spark a global recession.
U.S. first-time claims for jobless benefits fell to a 3-1/2-year low in the latest week, raising expectations that the weak labour market, which has bogged down U.S. economic growth, might be gaining traction. Signs of strength in the manufacturing sector also boosted investors' risk appetite.
There was also a sign of improvement in the European economy. A private gauge of euro zone manufacturing unexpectedly rose in December, although it remained at a level indicating a fourth straight month of contraction.
Can the U.S. go it totally alone? No. But the rest of the world, with the exception of Europe, we are pretty positive about. We don't think it's going to fall apart, said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
The absence, however, of a comprehensive plan from European leaders to contain the debt crisis continued to keep investors on the defensive. A rebound in oil, gold and commodities prices lost steam, a day after a steep sell-off, and U.S. and German government debt continued to attract safe-haven bids.
The typical drop-off in trading volume at year-end has compounded an unpredictable and risk-averse climate.
The risks are tremendous and the politics are fickle, said Milton Ezrati, market strategist at Lord Abbett Co. in Jersey City, New Jersey, which manages $100 billon in assets.
The plan produced by last week's European Union summit has failed to convince investors that leaders have a firm grip on how to rein in the region's debt crisis, resulting in growing pressure on the European Central Bank to take bold steps, including large scale purchases of euro zone sovereign bonds.
Amid objection from Germany, the ECB has so far resisted.
ECB President Mario Draghi said on Thursday that euro zone governments are on the right track to restore market confidence but reminded them that an emergency program to buy their bonds was neither eternal nor infinite.
Richard Batty, strategist at Standard Life Investments in London, noted the cross-currents buffeting financial markets.
We have some respite through a good auction and of course the U.S. data has been reasonably supportive, he said. But we still do not have a policy road map in place which enables Europe to avoid a slowdown and get back on track. Standard Life Investments is part of the Standard Life Group, which administers $303 billion of assets.
Spain drew solid demand for its bonds on Thursday, with its borrowing costs for five-year debt more than 2 percentage points lower than what Italy was forced to pay a day earlier.
As of 2:55 p.m. (1955 GMT), the Dow Jones industrial average <.DJI> was up 47.30 points, or 0.40 percent, at 11,870.78. The Standard & Poor's 500 Index <.SPX> was up 4.12 points, or 0.34 percent, at 1,215.94. The Nasdaq Composite Index <.IXIC> was up 1.02 points, or 0.04 percent, at 2,540.33.
An index of top European stocks <.FTEU3> ended up 1 percent, recouping half its drop on Wednesday.
Global stocks as measured by the MSCI world equity index <.MIWD00000PUS> were up 0.4 percent, erasing an earlier drop.
Tokyo's Nikkei <.N225> ended down 1.7 percent following Wednesday's declines on Wall Street and in European equities.
The euro rose a day after hitting an 11-month low against the dollar.
The euro rose about 0.25 percent at around $1.30 after having fallen as low as $1.2945 on Wednesday. The next major support for the currency will come at $1.2860, which is its lowest price this year.
The safe-haven Swiss franc got a boost after the central bank kept its cap on the currency at 1.20 per euro, curbing speculation it would move to weaken the franc further.
German Bund futures were down 0.1 percent at 137.75, while benchmark 10-year U.S. Treasury notes were flat in price for a yield of 1.91 percent after touching 1.86 percent, their lowest yield since early October.
Gold, another traditional safety play, extended its recent decline, as fund managers liquidated their holdings. The spot bullion price in London was last down 0.6 percent at $1,564 an ounce, hovering above its lowest level since late September.
In the oil market, Brent crude futures closed up 17 cents, or 0.16 percent, at $105.19 a barrel, while U.S. oil futures ended down $1.40, or 1.5 percent, at $93.55.
Oil and gold recorded their biggest one-day drop since late September on Wednesday on worries that euro zone debt crisis could hurt the global economy and commodity demand.