By Herbert Lash
NEW YORK (Reuters) - Global equity markets rose on a fresh round of strong U.S. economic reports on Friday, while German bond yields edged up from record lows as expectations that the European Central Bank would ease monetary policy next week faded.
Although euro-zone inflation dropped to a five-year low, it was not enough of a decline to force the ECB to enact monetary stimulus, analysts said. The data initially put a damper on European shares until new signs of an improving U.S. economy led a rebound.
U.S. consumer spending fell in July for the first time in six months, but a rise in consumer sentiment in August to a seven-year high suggested the retrenchment was likely temporary.
Other data showed a sharp acceleration in factory activity in the Midwest, underscoring the U.S. economy's relatively strong fundamentals.
Charlie Smith, chief investment officer at Pittsburgh-based Fort Pitt Capital Group, said he sees room to run in the five-year bull market because the outlook for earnings and economic data continue to improve, even though some investors are convinced the market is overvalued.
"You put together all this sort of steadily improving positives in terms of the economy with the fact that people hate the fact that the market won't correct, and it just keeps going (up) and it appears like it's going to," Smith said.
European stocks closed higher, while Wall Street was mostly higher. MSCI's gauge of worldwide stock performance <.MIWD00000PUS> also rebounded, gaining 0.08 percent.
The Dow Jones industrial average <.DJI> fell 1.26 points, or 0.01 percent, to 17,078.31. The S&P 500 <.SPX> rose 3.93 points, or 0.2 percent, to 2,000.67, and the Nasdaq Composite <.IXIC> is added 16.43 points, or 0.36 percent, to 4,574.12.
The FTSEurofirst 300 <.FTEU3> index of top European shares closed up 0.33 percent at 1,373.82 points.
European bond yields fell sharply across the euro zone at the start of the week after ECB President Mario Draghi highlighted a significant drop in inflation expectations in a speech at a meeting of central bankers in Jackson Hole, Wyoming.
Draghi's comments raised expectations that the ECB would soon deploy a large-scale purchase of assets, known as quantitative easing, or QE. That view helped weaken the euro and boosted enthusiasm for stocks on both sides of the Atlantic.
"What people realize is that for the ECB to engage in public-sector QE ... the ECB has to see the whites of the eyes of deflation," said Wouter Sturkenboom, investment strategist at Russell Investments.
German 10-year Bund yields
The benchmark 10-year U.S. Treasury
The euro
Against the yen
U.S. crude oil rose for a fourth straight day as the Midwest manufacturing data pointed to strong demand.
Brent
(Additional reporting by Marc Jones in London; Editing by Jonathan Oatis and Leslie Adler)
