Markets: World equities rally checked

Equities were higher overnight, especially in Europe, though gains were expected to be limited ahead of several key economic reports from the US government later this week.

In late trading, the Dow Jones Industrial Average was up 0.17 per cent, the Standard & Poor's 500 Index was up 0.03 per cent and the Nasdaq Composite was 0.12 per cent higher.

Among the most active stocks on Wall Street were Coca-Cola, Wal-Mart, BP's US listed shares and Noble.

There is increasing speculation that the chief executive of BP will soon resign because of the debacle surrounding the oil spill in the Gulf of Mexico, with the president of Russia saying on Monday that he expected a resignation decision soon.

"I would expect this week to be light trading," Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon, told Reuters. "There's uncertainty ahead of ... both of the employment report and ahead of earnings season."

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street's 'fear gauge', was 0.81 per cent higher at 28.76.

The Stoxx Europe 600 Index rose for the first time in five days, advancing 1.2 per cent to 251.36.

The U.K.'s FTSE 100 rose 0.5 per cent, Germany's DAX gained 1.43 per cent and France's CAC 40 added 1.61 per cent.

Among the most active stocks in Europe were PSA Peugeot Citroen, Rio Tinto, Premier Oil and Infineon Technologies.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.43 per cent to 85.68.

On the bond market, the benchmark US 10-year Treasury notes were trading 18/32 higher in price to yield 3.05 per cent, down from 3.12 per cent late on Friday, according to Reuters data.

Treasuries are the world's third-best-performing government debt securities this quarter, having returned 4.05 per cent, trailing 5.10 per cent for Denmark and 4.32 per cent for Britain, according to Bloomberg data.

The 30-year US long bond gained a point in price but quickly backed off. It was last up 23/32 in price, yielding 4.03 per cent versus Friday's close of 4.07 per cent.

The market was mostly unmoved on Monday by data showing a slightly larger than expected rise in consumer spending in May.

The S&P 500 and 10-year Treasury rates posted a correlation coefficient of 0.8412 in the 60 trading days through June 16, showing stock prices and bond yields were the most linked in Bloomberg data going back to 1962.

The last time the relationship was almost this strong during an economic expansion was at the beginning of the 2002 to 2007 bull market, when the benchmark gauge for US equities doubled.

"Correlation is one of the great lessons of the whole crisis, and it hasn't let its grip on the markets go," Barry Knapp, the New York-based head of US equity strategy for Barclays, told Bloomberg.

Knapp estimates the S&P 500 will climb 13 per cent to end the year at 1,210. "Whatever the nature of the crisis, the one decision investors seem to make is whether they should be in risky assets or out."

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.78 per cent higher to 263.53.

Spot gold was at US$1,240.45 an ounce by 2:33 p.m. EDT, compared with US$1,253.40 in New York on Friday.

Gold sharply came off from a high of US$1,262.45 earlier in the session, less than US$3 under its all-time high at US$1,264.90 an ounce set a week ago, as economic jitters pressured the euro and global equity markets.

Analysts, however, said gold should be supported by investors' concerns over the levels of euro zone debt and the stability of the region's banking system persisted.

US gold futures for August delivery settled down US$17.60, or 1.4 per cent, to US$1,238.60 an ounce.

At 1.52pm EDT, US crude for August was down US80 cents at US$78.06 a barrel. It traded as low as US$77.72 and as high as US$79.38, the highest intraday price since May 6.

August Brent crude was down US62 cents at US$77.50.