European stock markets rallied Friday as a ban on bearish bets in financial shares tempted investors back into the battered sector, but world shares trimmed gains after US consumer sentiment dropped to its lowest point in more than three decades.
The sentiment data tempered early optimism after US retail sales rose in July for the biggest gain since March. Consumer spending accounts for two-thirds of US economic activity, and the data indicated the third quarter was off to a promising start.
But the Thomson Reuters/University of Michigan's preliminary August reading on consumer sentiment came in at 54.9, the lowest since May 1980. "This has unquestionably been a very nervous time and people have been quite focused on macroeconomic and geopolitical events," said John Carey, portfolio manager at Pioneer Investments in Boston.
The sentiment data also turned the euro negative against the greenback and pushed more money into US Treasuries.US stocks were modestly higher after briefly turning negative following the sentiment report. European shares jumped 2.6 per cent. The MSCI world equity index rose 0.8 per cent.
The Dow Jones industrial average gained 91.96 points, or 0.83 per cent, at 11,235.27. The Standard & Poor's 500 Index was up 5.28 points, or 0.45 per cent, at 1,177.92. The Nasdaq Composite Index was up 10.74 points, or 0.43 per cent, at 2,503.42.
Bank shares, which have fallen sharply in recent days, led the move higher in Europe after the ban on short selling imposed by France, Italy, Spain and Belgium.
The four countries banned short selling -- borrowing shares and selling them in expectation the price will fall -- of a group of banks and financial institutions, after a flurry of rumours knocked a third of the value off some European bank shares this month.
Traders said the measure would provide temporary relief to jittery investors, but concerns about Euro-zone debt problems and a deteriorating outlook for the global economy would keep trading erratic.
Jitters about the Euro-zone debt crisis were reflected in tense money markets, where dollar funding costs rose.
A key cost for Wall Street to borrow short-term cash rose as dealers sought financing for some of the $72 billion in Treasuries debt supply they bought last week. The interest rate on repurchase agreements secured by Treasuries was last quoted at 0.08 per cent, up from 0.05 per cent late Thursday.
The Swiss franc fell sharply against the euro for a second session yesterday, a day after the Swiss National Bank said it may peg the franc to halt its rally, though many analysts said such a move was unlikely.
Safe-haven gold extended the previous session's retreat from record highs. Spot gold was down 1.7 per cent at $1,735.64 an ounce. It is still on track for its best weekly performance since November 2009, however, and has risen 22 per cent so far this year on a potent mix of concerns over US and Eurozone debt levels and economic growth.
The benchmark 10-year Treasury note was last 31/32 higher in price and yielding 2.23 per cent, down from 2.35 per cent late on Thursday.
The 30-year Treasury bond was last yielding 3.72 per cent, down from 3.76 per cent at Thursday's close.