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Bond yields saw some of their biggest declines of the year Thursday after soft U.S. economic data and the first interest rate hike in 11 years by the European Central Bank spurred more concern that a recession is just around the corner.

Stocks closed higher, with U.S. indexes posting bigger gains than the TSX thanks to a rally in growth stocks.

The benchmark U.S.10-year Treasury yield fell 16 basis points to below 2.90%, the biggest daily decline since March 2020. The Canadian 10-year and 5-year bond yields fell by about the same amount, with both yielding just below 3% by late afternoon.

The number of Americans enrolling for unemployment benefits rose last week to the highest in eight months and a gauge of factory activity slumped this month, the latest indications the U.S. economy is slowing under the weight of rising interest rates and high inflation.

The ECB raised its benchmark deposit rate by 50 basis points to zero percent, breaking its own guidance for a 25 basis points move, as concerns about runaway inflation trumped worries about growth.

But even as the ECB moved more than expected, forecasts for the so-called terminal rate - what the deposit rate was expected to peak at in coming months - was not changed.

“(ECB President Christine) Lagarde said that the size of the move today does not mean that we’re going to necessarily see a higher terminal rate, and I think the market focused on that mostly,” said Ben Jeffery, rates strategist at BMO Capital Markets in New York.

He said the ECB’s move took any lingering pressure away from the Federal Reserve to raise its benchmark overnight interest rate next week by more than the expected 75 basis points.

Wall Street’s main indexes were boosted by a late-afternoon rally and gains in heavyweight growth stocks, including Tesla.

The tech-heavy Nasdaq added 1.4% to lead the gains while the S&P 500 closed at its highest level since June 9. The Dow Jones Industrial Average climbed 0.5%.

Tesla shares surged 9.8% after the electric vehicle maker late on Wednesday posted better-than-expected quarterly results. The gains helped offset a slide in telecom and energy shares, while AT&T Inc tumbled, sending telecom shares down after the wireless carrier cut its cash flow forecast saying some subscribers were delaying bill payments. Energy stocks slipped on weak crude prices.

“The earnings picture has been maybe a little better than investors feared,” said J. Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management. “We investors are thinking that ..especially technology (sector) has come down too far, and maybe there’s some valuation opportunities there.”

Amazon and Apple each rose 1.5%, with both companies set to report their earnings on July 28.

The Dow Jones Industrial Average rose 162.06 points to 32,036.9, the S&P 500 gained 39.05 points, or 0.99%, to 3,998.95 and the Nasdaq Composite added 161.96 points to 12,059.61.

Nine of the 11 major sectors of the S&P 500 closed in positive territory, with consumer discretionary, heath care and information technology posting the biggest gains adding over 1% each.

Falling oil prices hit the S&P 500 energy sector, which tumbled 1.7% to lead declines across the sectors.

Market participants continue to await anxiously for the U.S. Federal Reserve meeting next week where policymakers are expected to raise interest rates by 75 basis points to curb runaway inflation.

The Fed rate decision next week will be followed by the crucial second-quarter U.S. gross domestic product data, which is likely to be negative again.

By one common rule of thumb, two quarters of negative GDP growth would mean the United States is in a recession.

“Consumers are just beginning to react to less money in their pockets, either from reduced overall job market or from rising interest rates and inflation,” Evans added.

“Part of the strong earnings reflects the past strength of consumers, whereas a lot of this broader decline that we’ve seen .. over the past few months has priced in a slowing in broader economy that eventually would affect consumers.”

Volume on U.S. exchanges was 10.58 billion shares, compared with the 11.63 billion average for the full session over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 1.77-to-1 ratio; on Nasdaq, a 1.52-to-1 ratio favored advancers. The S&P 500 posted 1 new 52-week highs and 29 new lows; the Nasdaq Composite recorded 23 new highs and 46 new lows.

Canada’s main stock index inched up to eke out its fifth day of gains, lifted by strength in industrials, miners and technology firms that helped counterbalance declines in energy producers.

The Toronto Stock Exchange’s S&P/TSX composite index closed up 42.18 points, or 0.22%, at 19,062.85.

Gold, which has been throttled in the last few months by “relentless strength” in the U.S. dollar, received a reprieve from the European Central Bank’s bigger-than-expected interest rate hike.

Precious metals producers including Pan American Silver Corp , K92 Mining and Osisko Mining were among the biggest gainers on the Toronto index. Spot gold was up 1.4% in afternoon trading.

The industrials subindex posted the biggest gain in Toronto, climbing 1.4%. It was lifted by Mullen Group, which handily beat estimates for second-quarter profit, and was the day’s best performer.

The energy sector fell 2.15%, dragged down by a 5.7% slump in crude prices on higher U.S. gasoline stockpiles and returning supply from Libya and Russia, and after the ECB’s rate hike stoked demand concerns.

The health-care sector, dominated by cannabis stocks, was the biggest decliner, falling 2.7%. rose 1.3%

Rogers Communications Inc rose 0.5% after appointing Ron McKenzie as its new chief technology and information officer, weeks after an unprecedented outage at one of Canada’s biggest telecom operators shut banking, transport and government access for millions.

Reuters, Globe staff

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