(Adds close of U.S. markets)

* COVID vaccine hopes drive risk-on sentiment

* Economic, crude oil data help growth outlook

* Simmering U.S.-Sino tensions remain a concern

By Herbert Lash

NEW YORK, July 15 (Reuters) – World shares strode to four-month highs on Wednesday as hopes for a coronavirus vaccine helped lift the euro and oil prices offset rising U.S.-China tensions.

Asian markets were choppy after more barbs between Beijing and Washington over Hong Kong, but gains of almost 2% in European bourses and Wall Street’s advance led investors to set aside concerns about the growing number of COVID cases.

An experimental vaccine produced by biotech start-up Moderna Inc drew safe immune responses in all 45 healthy volunteers, an early stage trial showed on Tuesday.

A separate University of Oxford trial was also positive news, according to reports on Wednesday.

U.S. Treasury yields rose and the yield curve steepened, indicating a wider spread between long- and short-term interest rates, as hopes for a vaccine boosted risk appetite and upbeat economic data released on Wednesday added to the optimism.

“The market is trading fairly ‘risk on’ on vaccine hopes,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. “It’s largely COVID news driving the price action recently.”

U.S. industrial production, manufacturing output and plant capacity rose more than expected in June and there was a bigger- than-expected draw in U.S. crude and refined products last week as demand edges up.

Adding to the enthusiasm, the Federal Reserve’s Beige Book survey showed U.S. businesses saw an uptick in activity into the beginning of July as states eased restrictions to contain the pandemic.

Europe’s broad FTSEurofirst 300 index rose 1.65%, as growth-sensitive sectors such as travel & leisure, miners and industrial companies led gains.

Moderna surged to a record high after its experimental drug produced high levels of virus-killing antibodies, bolstering hopes it may prove effective in later stages of testing. Moderna shares rose 6.9%.

Goldman Sachs rose after reporting its trading revenue doubled in the second quarter, driven by big swings in stock and bond markets since March.

On Wall Street, the Dow Jones Industrial Average rose 0.85%, the S&P 500 gained 0.91% and the Nasdaq Composite added 0.59%.

Stocks that have benefited from widespread lockdowns, including Amazon.com Inc and Zoom Video Communications Inc, slid and limited Nasdaq’s gains. Amazon posted its third consecutive session of losses.

Hopes of progress this week towards a deal on the European Union’s 750 billion-euro COVID recovery fund helped sentiment in Europe. The euro traded above $1.1430 for the first time since March, and Italy and Spain’s bond market borrowing costs came down again.

The euro rose 0.11% to $1.1409. The European Central Bank started a two-day meeting, though no major announcement is expected when it concludes on Thursday.

Chinese shares fell 1.3% and Hong Kong ended flat after U.S. President Donald Trump ordered an end to Hong Kong’s special status under U.S. law to punish China for its “oppressive actions” against the former British colony.

China’s foreign ministry retaliated, saying “Hong Kong affairs are purely China’s internal affairs and no foreign country has the right to interfere.”

Japan’s Nikkei and Australia’s benchmark index remained upbeat, finishing up 1.6% and 1.9%, respectively.

RED ALERT

The dollar was on the defensive, particularly against risk-sensitive currencies, following the news of progress in vaccine development.

Sweden’s crown vaulted to its highest versus the greenback since February 2019 and the risk-sensitive Australian dollar popped to a one-month high at $0.70.

The yen was down 0.30% at $106.9100.

Oil rose on the sharp drop in U.S. inventories, but further gains were limited as the Organization of the Petroleum Exporting Countries and allies were set to ease supply curbs from August as the global economy recovers from the pandemic.

Brent crude settled up 89 cents at $43.79 a barrel, while U.S. crude rose 91 cents to settle at $41.20 a barrel.

Gold prices held above $1,800 an ounce as the surge in coronavirus cases and renewed U.S.-China tensions bolstered safe-haven demand, but the rally in stocks capped the advance.

U.S. gold futures added 40 cents to settle at$1,813.80. Spot gold rose 0.22% to $1,811.50.

Yields on the 10-year U.S. Treasury note rose 1.9 basis points to 0.6332%.

Reporting by Marc Jones and Herbert Lash, additional reporting
by Karen Brettell in New York; Editing by Steve Orlofsky and
Richard Chang

Source

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