Stocks and the dollar surged yesterday and safe-haven gold and government bonds plunged yesterday as US forces smashed into the heart of Baghdad, boosting prospects for a quick end to the war in Iraq.
Oil prices skidded lower in expectation a rapid end to the war would increase supplies of Gulf crude on the world market.
On the 19th day of the war to topple Iraqi President Saddam Hussein, US officers said their forces had seized the main presidential palace in central Baghdad. A British military spokesman said the Iraqi leader had no significant forces left.
Iraq's information minister said US forces were "committing suicide" at the walls of Baghdad.
"The fact that they are occupying presidential palaces and other targets in central Baghdad is clearly very significant," said Simon Flint, markets strategist at Bank of America in Singapore.
The dollar rose to two-week highs against the euro, yen and Swiss franc. It rose one percent against the euro, touching US$1.0595 before moving to US$1.0604. The dollar was up more than half a percent against the yen at ?120.75 and up a percent against the Swiss franc at 1.41.
"It's a while since we had good news on a Monday. The latest headlines out of Iraq helped push the dollar higher," said Nick Parsons, currency strategist at Commerzbank in London.
European stocks opened higher. The FTSE Eurotop 300 index of pan-European blue chips was 1.65 percent higher while the broader Dow Jones Euro STOXX 50 index was up 2.18 percent.
US stock index futures were higher, indicating Wall Street would also open higher later.
Tokyo stocks closed sharply higher. The Nikkei index ended up 2.18 percent while the broader TOPIX index rose 1.89 percent.
"Blue chips are rising in anticipation of a rally in New York tonight based on hopes for a quick end to the war," said Ken Masuda, senior dealer at Shinko Securities.
Concern the war is taking a toll on corporate profits and the US economy weighed on US stocks on Friday. The Dow Jones Industrial average closed 0.45 percent higher while the tech-heavy NASDAQ fell 0.94 percent.
Markets have risen and fallen in recent weeks as perceptions of how long the war would last have ebbed and flowed. A Reuters poll of money managers taken last Tuesday produced a consensus forecast for the war to last six more weeks.
Oil prices fell yesterday in anticipation of a rapid end to the war allowing more crude to flow from the Gulf region.
US light crude for May was down US$0.87 a barrel at US$27.75 while Brent crude was down 68 cents at US$24.
Government bond yields, which move inversely to the price, soared in early European trade as safe-haven assets shed more of their war premium.
The yield on the two-year German Schatz note yield wa 9.6 basis points higher at 2.57 percent. The benchmark 10-year German Bund was yielding 4.28 percent, up 9.1 basis points.
Euribor short-term interest rate contracts also fell.
"The Bund and the Euribor contracts have fallen hard as this war could end sooner than imagined and some investors even think interest rates might rise in Europe as soon as the conflict is over," a trader in London said.
US Treasury yields were also sharply higher. The 10-year Treasury note was yielding 4.04 percent, up 7.9 basis points.
"I expect the yield could rise as far as 4.5 percent because the war premium accounts for roughly 100 basis points," said Akihiro Nishida, senior fixed income strategist at Mitsubishi securities.
Gold, another safe haven for investors in turbulent times, fell sharply in early European trade. Spot gold was last at US$320.75/US$321.50 an ounce, having hit a four-month low around US$320.50 in Asian trade and compared with US$325.35/US$326.05 at the New York close on Friday.
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