NEW YORK (Dow Jones)--In the latest twist on an extremely volatile trading day, risk sentiment improved Friday after news that Italy agreed to speed up fiscal reforms.
The Dow Jones swung wildly throughout the day, and was recently up 123 points, or 1.1%, to 11507. It has traded in a 416-point range as market participants traded bouts of excitement over upbeat news on U.S. jobs and European debt problems with concerns about the long-term health of the global economy.
"The somewhat stabilizing news out of Europe is allowing us to bounce from very over-sold levels," said Tom Donino, co-head of trading at First New York Securities.
The euro rallied sharply on the news Italy will speed up its fiscal reform consolidation program, including introducing a balanced budget rule. The Dow followed the euro higher.
Separately, Reuters reported the European Central Bank agreed to buy Italian debt if an agreement to expedite reforms was reached. There were also reports that the ECB would buy Spanish debt as well.
The prospect of the ECB buying Spanish and Italian bonds "does potentially significantly reduce a lot of stress on those key economies, that's largely why we're seeing the euro rally," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Yields on Italian debt had soared in recent weeks as investors became worried that the euro zone's sovereign debt problems were not being handled adequately. Yields on 10-year Italian bonds jumped above 6.1% earlier Friday for the first time since the euro was introduced. They have fallen back below 6% in recent trading.
The Italian fiscal reform agreement sparked a rally in the euro against other major currencies. Risk-related currencies bounced higher following the euro's lead.
The euro rose 1.2% against the dollar Friday to $1.4255. It jumped as high as $1.4286 earlier in the day.
The common currency jumped more than 2% against the Swiss franc to CHF1.0979 from CHF1.0760 late Thursday, according to EBS via CQG.
Commodity-linked currencies like the Australian and Canadian dollars both turned positive against their U.S. counterpart following the euro's lead. The pair had been lower on signs of risk-aversion earlier in the day.
Treasurys and other safe havens took the brunt of the renewed risk sentiment. The benchmark 10-year Treasury note fell 24/32 in price, pushing up the yield to 2.543%. Yields move inversely to price.
Gold, which has been a haven from market turmoil, held firm on the news as investors remain skittish in the wake of recent volatility. Comex December gold fell $3.20 to $1,655.80 a troy ounce.
Markets were extremely volatile earlier in the day after a better-than-expected report on U.S. employment. Employers added 117,000 jobs last month, above the 75,000 economists had forecast. Stocks and other risk assets initially rose sharply on that news early in New York trading.
But the luster of that excitement quickly wore off and traders plowed back into safe-havens, extending the market's risk aversion that had been seen through much of the week.
The Dow had tumbled 512 points Thursday, its biggest point drop since Dec. 1, 2008 during the peak of the financial crisis, and plunged into the red for the year.
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