U.S. Stocks Rise; Bond Selloff Continues

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By Christopher Whittall and Aaron Kuriloff

Fresh gains in energy shares pushed the Dow Jones Industrial Average higher to open the final month of the year, as selling in yield-bearing shares and government bonds accelerated.

The blue-chip index rose 57 points, or 0.3%, to 19180 on Thursday after posting its biggest monthly gain in November since March. The S&P 500 climbed 0.1%, and the Nasdaq Composite slipped 0.4%.

Investors sold real estate, utilities and telecommunications shares, known as proxies for bonds, and the yield on the 10-year Treasury note climbed to 2.441% from 2.365% at Wednesday's close, according to Tradeweb. U.S. Treasurys saw their worst month in seven years in November. Yields rise as prices fall.

The election of Donald Trump has boosted investors' expectations for higher U.S. growth and inflation in recent sessions, sending government debt and dividend stocks tumbling while sparking gains in the dollar and shares that tend to do better in times of economic expansion.

Some analysts said a strong jobs report Friday could increase the pace of that rotation, even as several remain concerned that investors' hopes for a new pickup in economic expansion eventually could be dashed.

"It's not clear if those expectations are going to be fulfilled," said David Lefkowitz, senior equity strategist at UBS Wealth Management Americas. "It really hinges on the success of some of these reflationary policies."

European stocks slipped, after Asian shares gained overnight on the back of Wednesday's surge in crude prices.

European shares lagged behind a rally in U.S. stocks last month as investors have remained cautious ahead of Italy's constitutional referendum Sunday -- the first of a series of important votes in Europe in the coming months.

Many analysts expect Italy's reform-minded government to lose that vote, potentially unseating Prime Minister Matteo Renzi.

Chris Jeffery, an asset allocation strategist at Legal & General Investment Management, said there is "market agitation about political risk" but added this "is happening against a backdrop where the global economy has surprised positively."

"On equities, we're pretty close to neutral because of these offsetting pressures: political risks on the one hand, but the economic data not looking too bad on the other hand," he said.

A string of eurozone data releases showed promising signs for the local economy Thursday. The eurozone manufacturing purchasing managers index hit its highest level in November since January 2014, according to IHS Markit.

Energy shares gained in Europe, but weakness across most other sectors dragged the Stoxx Europe 600 down 0.4% recently. So-called bond proxies such as utilities and real-estate stocks were among the worst-performing sectors.

Eurozone government bonds were also weaker, with the yield on the 10-year German government bond rising to 0.326%, according to Tradeweb.

Bond investors are looking ahead to the European Central Bank's meeting next week. Most analysts expect the ECB will extend its vast bond-buying program beyond March.

The recent move higher in global bond yields has been driven mainly by expectations of higher U.S. growth and inflation that could cause the Federal Reserve to raise interest rates faster than previously expected. Higher oil prices, which also should boost inflation, have further fueled the selloff.

"The move in Treasurys has been very significant. It does capture a degree of optimism around the growth outlook for next year," said Andrew Wilson, global co-head of fixed income management at Goldman Sachs Asset Management, who thinks it is highly likely the Fed will raise rates in December.

Still, Mr. Wilson said, "we'd need to see validation of that optimism in economic data" for yields to move higher from here.

The U.S. dollar also gained on expectations of higher interest rates, which tend to boost the attractiveness of a currency. The WSJ Dollar Index, which measures the dollar against a basket of 16 other currencies, was little changed Thursday, after closing at its second-highest level of the year Wednesday.

The British pound jumped after the minister responsible for the country's exit from the European Union said the U.K. would consider making payments to the EU budget to secure the best access to the bloc for trade. The pound was up 1.1% against the dollar at $1.2660.

In Asia, Australia's S&P ASX 200 closed up 1.1%, while Japans's Nikkei Stock Average also rose 1.1%, to close at its highest level of the year.

In other commodities, gold prices fell 0.8% at $1,164.80 an ounce.

--Jenny Gross contributed to this article.

Write to Christopher Whittall at christopher.whittall@wsj.com and Aaron Kuriloff at aaron.kuriloff@wsj.com

  (END) Dow Jones Newswires
  Copyright (c) 2016 Dow Jones & Company, Inc.

This article appears in: Bonds
Referenced Symbols: EEMA

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