A manufacturing rebound in China and stronger-than-expected U.S. factory data spurred a jump in equity and commodity prices worldwide on Wednesday, helping start the month on a bright note after a gloomy August.
Government debt prices extended losses, with the price of benchmark 10-year U.S. Treasury notes and German Bund futures shedding more than a full point, after U.S. manufacturing rose in August for a 13th straight month. Major stock indexes around the world rallied more than 2 percent.
The U.S. dollar rebounded to rise against the Japanese yen, and the Australian dollar rallied 2 percent against the greenback after a raft of upbeat economic data around the world lifted the appetite for risk.
Investors had been expecting the reading on U.S. manufacturing activity from the Institute for Supply Management to show a decline in August from July, which would have fit with recent data that has shown a decided slowdown in the U.S. economic recovery.
The Institute for Supply Management, an industry group, said its index of U.S. factory activity rose to 56.3 in August from 55.5 in July, beating a survey of 79 economists by Reuters for a reading of 53.0.
With the Institute for Supply Management not only showing a gain from July but completely confounding the consensus of economists for a sharp drop, all of a sudden the economic world is not coming to an end, and that is sharpening the appetite for risk assets, said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.
U.S. manufacturing has expanded every month since August 2009, although the pace of growth had slowed in recent months amid signs that a broader U.S. recovery was faltering.
Equity markets already were higher after China's manufacturing sector staged a moderate rebound in August and data showed Australia's economy grew at the fastest pace in three years in the second quarter.
The Dow Jones industrial average <.DJI> was up 234.09 points, or 2.34 percent, at 10,248.81. The Standard & Poor's 500 Index <.SPX> was up 27.56 points, or 2.63 percent, at 1,076.89. The Nasdaq Composite Index <.IXIC> was up 57.72 points, or 2.73 percent, at 2,171.75.
Shares of aluminium producer Alcoa Inc
Copper hit its highest level in more than four months on the manufacturing rebound in China, the world's biggest copper consumer, while oil rose to almost $74 a barrel.
Energy shares jumped with the rise in crude oil prices. The NYSE Arca Oil index <.XOI> rose 3.46 percent.
U.S. light sweet crude oil rose $2.07 to $73.99 per barrel.
ICE Brent rose $1.93 to $73.85.
China's purchasing managers' index (PMI) rose to 51.7 in August from 51.2 in the previous month, official data showed on Wednesday.
European PMIs were less positive, showing manufacturing in the euro zone grew last month at its slowest pace since February.
European shares advanced to a near two-week high, bolstered by mining shares on merger and acquisition talk, including BHP's hostile bid for Canadian group Potash Corp
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The FTSEurofirst 300 <.FTEU3> index of leading European shares was up 2.7 percent.
The MSCI All-Country World equity index <.MIWD00000PUS> rose 2.57 percent, and the Thomson Reuters global stock index <.TRXFLDGLPU> gained 2.44 percent.
The benchmark 10-year U.S. Treasury note was down 34/32 in price to yield 2.59 percent.
The dollar was off against a basket of major currencies, with the U.S. Dollar Index <.DXY> down 0.95 percent at 82.411.
The euro was up 1.06 percent at $1.2819, and against the yen, the dollar was up 0.43 percent at 84.52.
Spot gold prices rose $1.20, or 0.10 percent, to $1,246.80 an ounce.
(Reporting by Chuck Mikolajczak, Wanfeng Zhou and John Parry in New York; Dominic Lau, Christopher Johnson and Jan Harvey in London; Writing by Herbert Lash; Editing by Leslie Adler)