Euro gains on EU recovery-fund plan, oil climbs

NEW YORK (Reuters) – The euro and European government debt rallied on Tuesday, lifted by a Franco-German proposal to fund grants for regions hit hardest by the coronavirus pandemic, while oil rose on growing demand as countries eased business lockdowns.

A gauge of global equity markets also moved up, though major European stock indices were lower and Wall Street traded mixed.

Gold prices rose as some investors sought the safe-haven asset on recession fears after a 30.2% decline in U.S. housing starts in April, the biggest percentage drop on record.

Permits for future construction tumbled, adding to data showing the pandemic will drive the deepest U.S. economic contraction in the second quarter since the Great Depression.

The euro rose 0.23% to $1.0937, and was up more than 1% against the dollar since the Franco-German plan for a 500 billion euro European Union recovery fund was announced Monday.

“The Franco-German proposals are ambitious, targeted and, of course, welcome,” European Central Bank President Christine Lagarde said of the plan, which would move the EU in the direction of a so-called “transfer union.”

The euro traded near a two-month high against the Swiss franc, and options markets showed fewer traders were now betting against it.

Spanish and Portuguese government bond yields fell after a big drop in Italian yields on Monday. France and Germany also proposed allowing the European Commission to borrow money in the EU’s name in financial markets while respecting the bloc’s treaties.

Europe’s STOXX 600 index slipped 1.2% after the worldwide surge in equity markets on Monday. But MSCI’s gauge of stocks across the globe gained 0.46%.

On Wall Street, the Dow Jones Industrial Average fell 76.13 points, or 0.31%, to 24,521.24. The S&P 500 gained 1.4 points, or 0.05%, to 2,955.31 and the Nasdaq Composite added 57.43 points, or 0.62%, to 9,292.26.

Federal Reserve Chair Jerome Powell said in testimony before lawmakers that the Coronavirus Aid, Relief and Economic Security (CARES) Act passed in March was “critical” to the Fed’s ability to expand credit to offset the economic blow from the coronavirus.

U.S. Treasury yields were lower. The benchmark 10-year yield was last down 2.4 basis points at 0.7176%.

Crude prices rose amid indications producers were cutting output and on signs of rising demand as lockdowns ease.

U.S. crude recently rose 2.04% to $32.47 per barrel and Brent was at $34.82, up 0.03% on the day.

Britain’s pound shrugged off the UK’s highest unemployment claims figures in nearly a quarter of a century, and a near 80% plunge in European new car sales in April contributed to 1.8% fall in auto sector shares.

Sterling trading at $1.2243, up 0.44% on the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.8% to two-week highs and Japan’s Nikkei added nearly 2%.

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