US and European stocks climbed more than 3 percent, reversing course after steep losses the previous day.
The US data and corporate results provided a respite from overnight fears about the health of the euro zone banking system.
But the sanguine view in the equity market contrasted with nervousness in the short-term funding markets, where there were tangible signs of concern. Fears over the health of French banks intensified European banks’ scramble for dollars, driving up their dollar borrowing costs to levels not seen since the 2007-2009 global credit crisis.
Markets were also on edge after banking sources told Reuters that one bank in Asia had cut credit lines to major French lenders while others in the region were reviewing trades and counterparty risks due to concerns about the exposure of French banks to peripheral euro zone bonds.
US initial claims for state unemployment benefits fell last week to the lowest level since early April. Analysts said one week was not enough to show definitive improvement in the struggling labor market, but the better-than-expected data was a welcome surprise.
“Had we seen a jump (in claims) it would have reinforced recession fears. What we’ve seen here is not anything to allay those fears, but just to set them aside temporarily,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
The anemic pace of US first-half growth has fueled worries of another recession, and analysts are watching for signs the recovery could pick up steam in the rest of 2011.
The US Treasury sold $16 billion worth of 30-year long bonds at a poorly received auction, with investors showing the weakest overall demand in 2-1/2 years and foreigners largely steering clear.
In the open market, the 30-year bond lost 5 points in price immediately after the auction results. The benchmark 10-year bond yielded 2.30 percent, up from 2.12 percent late on Wednesday.
The dollar and euro soared more than 5 percent versus the Swiss franc after the Swiss National Bank said it could ease monetary policy further. Markets focused on the possibility of a temporary peg between the franc and the euro to rein in a soaring currency.
The dollar rose 4 percent to 0.7552 franc and the euro was up 4.3 percent at 1.0731 francs. It set a record low of 1.0075 on Tuesday.
The MSCI world equity index gained 2.4 percent, changing course after early losses, and the pan-European FTSEurofirst 300 closed up 2.7 percent.
The Dow Jones industrial average , led by shares of energy and financial companies, gained 403.84 points, or 3.77 percent, at 11,123.78. The Standard & Poor’s 500 Index was up 48.31 points, or 4.31 percent, at 1,169.07. The Nasdaq Composite Index was up 101.88 points, or 4.28 percent, at 2,482.93.
Wall Street was also boosted by a surge in Cisco Systems, up more than 16 percent the day after it forecast a modest increase in current-quarter revenue.
Legendary investor Warren Buffett told Fortune magazine he has been buying during this week’s sharp market declines and has not yet seen anything that suggests another downturn.
Gold slid from record highs as investors cashed in recent gains and after CME Group said it was hiking margins for trading COMEX gold futures. Spot gold was down 1.8 percent at $1,762.39 an ounce
Societe Generale, at the center of Wednesday’s storm that took its shares down more than 20 percent at one point, rose 3.7 percent, while BNP Paribas edged up 0.3 percent.
In the credit markets, the cost of insuring French bank debt hit new records, reflecting worries about the health of those banks, which are heavily exposed to troubled euro zone sovereign debt.
It pulled back a bit as European markets closed.
Societe Generale’s CDS costs were last up 8 basis points on the day to 342 basis points, after earlier trading as high as 383 basis points, Markit data show.
That means it would cost 342,000 euros per year for five years to insure 10 million euros in debt.
This cost has more than doubled in the past two weeks.
BNP Paribas’ CDS costs were little changed on the day at 236 basis points, after earlier rising to 256 basis points, and are up from 110 basis points in early July.
Credit Agricole’s swap costs last traded at 271 bps, up from 130 basis points in early July, Markit data show.
