Stocks gain on stimulus hopes

World stocks rose more than 1% yesterday and the euro gained amid optimism the world’s central banks will provide more economic stimulus as the eurozone debt crisis worsens.

The Iseq index closed up 0.5% after a day of steady gains. The main movers on the Irish stock exchange were Independent News and Media and Bank of Ireland which were up 4% and 2% respectively.

The euro gained 0.5% to $1.2640 after hitting session highs of $1.2647.

The FTSEurofirst 300 added 1.6% while Spain’s IBEX rose 2.7%.

At the same time, concern mounted over a sharp rise in Spain’s short- term borrowing costs, a big fall in German investor confidence and Greece’s commitment to its bailout plan.

Spain came closer to becoming the largest eurozone country yet to be shut out of credit markets when it had to pay a euro era record price to sell short-term debt.

The eurozone’s fourth largest economy, Spain had to pay 5.07% to sell 12- month Treasury bills and 5.11% to sell 18-month paper — an increase of about 200 basis points on the last auction for the same maturities a month ago. Yields on longer-term bonds are over 7%.

On Monday, initial enthusiasm over a weekend victory for pro-bailout parties in Greek elections gave way to worry about the nagging debt crisis still facing the eurozone.

The US Federal Reserve yesterday began a two-day policy-setting meeting with investors focused on whether it will unveil any more stimulus to support the lacklustre recovery.

Analysts expect the Fed to extend its long-term bond-buying through “Operation Twist” by a few months from the current deadline of June.

Expectations of further stimulus from the Fed pressured the US dollar across the board.

Investors have been worried about the impact of the eurozone crisis on the global economy, particularly as the US economy appears to be losing momentum.

“People are anticipating some type of response from the Fed tomorrow and are buying or covering shorts in anticipation of that,” said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

A surprise fall in British inflation strengthened the chance of steps from the Bank of England to support the UK economy as it feels the heat.

Additional reporting Reuters