(Adds close of U.S. market)
* Major U.S. and European indices gain more than 1%
* German IFO business index shows unexpected resilience
* ECB says it could see interest rate "lift-off" in July
* Dollar weakens as euro gains on ECB rate talk
NEW YORK/LONDON, May 23 (Reuters) - U.S. and European stocks
rallied on Monday, with the S&P 500 for the moment moving
away from a bear market, while the euro leapt after the European
Central Bank said it was likely to lift its deposit rate out of
negative territory by September.
Oil prices slid and gold extended recent gains, but the
dollar fell further as investors cut their bets on more
greenback advances based on market expectations for rising
yields as the Federal Reserve tightens money supply.
The MSCI all-country world index gained
1.54%, but is still down about 17% from its record high in
January. The pan-European STOXX 600 index rose 1.26%,
with the major British, French, German
and Spanish indices rising more than 1% each.
Stocks on Wall Street also gained more than 1%, though the
Nasdaq Composite initially lagged after briefly trading
in the red.
The Dow Jones Industrial Average rose 1.98%, the S&P
500 advanced 1.86% and the Nasdaq Composite added
1.59% in choppy trade. Growth stocks rose 1.98%, outpacing a
1.74% gain in value stocks.
The rally lifted all 11 S&P 500 sectors and put the
benchmark on track for its first week of gains after seven
consecutive weekly losses on fears of a looming slowdown, yet
many analysts say the equities downturn is not over.
Stock investors are under the illusion that the Fed will
rescue the market from further decline by easing monetary
policy, or what has become known as the Fed "put," said Steven
Ricchiuto, U.S. chief economist at Mizuho Securities.
"It's going to be a very, very sluggish growth environment
and the Fed's not going stand in the way of it," Ricchiuto
added. "You're seeing the bond market go down in yield. That's
been saying to the equity market that the put isn't there and
therefore the equity market needs to adjust as well."
The yield on 10-year Treasury notes rose 7.7
basis points to 2.864% after a more than 40-basis-point decline
from a multi-year high of 3.203% set two weeks ago.
Others also see the equity market in difficulty.
Given that a majority of S&P 500 constituents have already
fallen by more than 20% from 52-week highs, it is safe to assume
the bears are firmly in control of the market, said Anthony
Saglimbene, Ameriprise's global market strategist, in a note.
BlackRock Investment Institute cut its ratings of developed
market equities to "neutral" from "overweight," citing the Fed's
potentially overzealous efforts to curb inflation and signs of
an economic slowdown in China.
The focus in Europe was on ECB President Christine Lagarde,
who accelerated an already sharp policy turnaround from all but
ruling out interest rate hikes to now penciling in several in
the face of record-high euro zone inflation.
The prospect of higher rates lifted the euro 1.24% to
$1.0691. The single currency has risen about 3.3% since hitting
a multi-year low 10 days ago.
"The doves are throwing in the towel," said Holger
Schmieding of Berenberg bank, adding that he expects ECB rate
hikes of 25 basis points in July, September and December.
A survey from the Ifo Institute showed that German business
morale unexpectedly rose in May, helping to calm investors for
"I don't think we have reached rock bottom yet, it's a bear
market rally. The market is still pretty concerned about sticky
inflation," said Michael Hewson, chief markets analyst at CMC
The World Economic Forum holds its first in-person meeting
in two years in Davos, Switzerland over the next four days, with
central bankers and the International Monetary Fund taking part
in panels on the outlook for economies and inflation.
The dollar index, which tracks the greenback against
a basket of other major currencies, slid 0.855%. The index rose
about 16% to a two-decade high over the 12 months to mid-May.
Asian stocks fell overnight as investors worried inflation
and rising rates would hamper the global economy's performance.
MSCI's broadest index of Asia-Pacific shares outside Japan
was slightly weaker.
Oil prices were little changed as worries over a possible
recession offset an outlook for higher fuel demand with the
upcoming U.S. summer driving season and Shanghai's plans to
reopen after a two-month coronavirus lockdown.
U.S. crude futures settled up 1 cent at $110.29 a
barrel and Brent rose 87 cents to settle at $113.42.
Gold prices climbed as weakness in the dollar and economic
growth concerns lifted the metal, though non-yielding bullion
pared some gains after Treasury yields rose.
U.S. gold futures settled up 0.3% at $1,847.80 an
Bitcoin fell 3.55% to $29,189.85.
(Reporting by Herbert Lash, additional reporting by Huw Jones
in London; Editing by Emelia Sithole-Matarise, Kirsten Donovan,
Will Dunham and Richard Chang)