Fri Jun 29, 2012 5:02pm EDT
* Euro posts hefty 1-day gain but falls in quarter
* Wall Street records first quarter loss in three
* Oil suffers biggest quarterly drop since 2008
* Spanish, Italian yields fall from elevated levels
By Herbert Lash and Richard Leong
NEW YORK, June 29 (Reuters) - The euro jumped nearly 2 percent, oil prices surged and world stocks rallied o n F riday after euro zone leaders agreed on measures to cut soaring borrowing costs in Italy and Spain, in addition to directly recapitalizing regional banks.
The rebound was a mildly encouraging finish to a miserable second quarter for investors, when stocks gave back most of their first-quarter gains, the euro hit a near-two-year low and oil dropped below $100.
Spanish and Italian government bond yields fell sharply, while safe-haven U.S. and German government debt sold off after the region's leaders agreed that European Union bailout funds could be used to stabilize bond markets to support countries that comply with EU policy recommendations.
EU leaders also agreed after 14 hours of intense talks that creation of a single supervisory body for euro zone banks, housed under the European Central Bank, would be discussed by year-end - a first step toward a banking union in the region.
Markets rallied on the news, which caught investors by surprise, as expectations for meaningful steps to tackle the debilitating debt crisis had all but disappeared in the run-up to the two-day EU summit.
"We've gotten used to being underwhelmed by the outcomes, so with little to no expectations for success, the fact that it appears we are going to get something substantial is a real important positive for the market in the near term," said Art Hogan, managing director of Lazard Capital Markets in New York.
"It's inching closer to a banking union and the closer we get to a banking union would put (the EU) well on the road to a fiscal union."
The euro surged against the U.S. dollar, climbing as high as $1.2692. It was last up at $1.2657, up 1.8 percent from Thursday, which was its biggest one-day percentage rise since October 2011.
For the quarter, however, the 17-member common currency was down 5.1 percent after a 3.1 percent gain in the first quarter.
Wall Street stocks rose more than 2 percent, following a jump in Europe that also boosted indexes more than 2 percent, spurred by soaring bank shares.
The S&P healthcare index took part in the market rally, rebounding 1.9 percent after falling o n T hursday when the Supreme Court upheld the landmark law that requires most Americans to buy health insurance.
Among the day's losers was Research in Motion, which tumbled 19.1 percent to $7.39 after it delayed the launch of its next-generation of BlackBerry phones.
The Dow Jones industrial average closed up 277.83 points, or 2.20 percent, at 12,880.09. The Standard & Poor's 500 Index ended up 33.12 points, or 2.49 percent, at 1,362.16. The Nasdaq Composite Index finished up 85.56 points, or 3.00 percent, at 2,935.05.
The three major Wall Street averages suffered their first quarterly loss since the third quarter of last year. The Dow fell 2.5 percent; S&P 3.3 percent and the Nasdaq 5.1 percent.
In Europe, the FTSE Eurofirst 300 index closed 2.6 percent higher, shaving its quarterly loss to 4.46 percent.
The European bank sector strengthened 4.1 percent despite another decline in Barclays shares after they tumbled on Th ursday on news the British bank paid record fines in a probe of manipulating interbank loan rates.
MSCI's all-country world equity index gained 2.7 percent. Its biggest one-day gain in seven months pared its second-quarter decline to 6.1 percent, which followed a 10.9 percent rise in the first quarter.
The MSCI emerging markets index climbed 3.5 percent, reducing its second-quarter fall to 9.8 percent.
The price of safe-haven German bonds headed lower - briefly pushing yields above their U.S. equivalents for the first time since early February - while prices for gold, oil and copper all rose.
Yields on 10-year German debt rose as high as 1.691 percent, before paring gains to 1.584 percent. Their U.S. counterpart, the benchmark 10-year U.S. Treasury note , was down 18/32 in price to yield 1.647 percent.
The 10-year Bund yield fell to a record low of 1.127 percent on June 1 and finished the second quarter 22 basis points lower.
The 10-year yield fell 56 basis points in the second quarter during which it set a historic low of 1.442 percent on June 1.
Yields on Italian 10-year debt fell to 5.839 percent from 6.192 percent late o n T hursday, while yields on the Spanish equivalent fell to 6.346 percent, down from Thursday's close of 6.915 percent.
The drop in Spanish and Italian borrowing costs, while welcomed, has not been big enough as the euro zone's third- and fourth-biggest economies are struggling.
"We really didn't see any actions by the authorities last night which are going to have a material impact on either of those," Andrew Milligan, head of global strategy at Standard Life Investments in London.
SKEPTICISM PERSISTS
Despite the market euphoria, some remained skeptical.
"This is another Band-Aid," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "There was not anything material that came out of the discussion that would help resolve the crisis."
Still, the respite gave investors a breather ahead of the third quarter, which could be another volatile period for stocks, the euro and commodities.
Oil prices rallied on last trading day of the quarter, but still posted their deepest quarterly loss since 2008.
Brent crude for August settled up $6.44 or 7.05 percent at $97.80 a barrel. U.S. crude settled up $7.27 or 9.36 percent at $84.96 a barrel, up from an eight-month low hit on Thursday.
For the quarter, spot Brent and U.S. oil futures fell 20.4 percent and 17.5 percent for their steepest quarterly percentage drops since the fourth quarter of 2008, during the height of the global credit crunch.
Spot gold prices climbed 3.0 percent to $1,598.80 an ounce. They fell 4.2 percent in the second quarter, paring gold's year-to-date gain to 2.2 percent.
Copper rose 4.4 percent at $7,684.85 a tonne to hit a one-month high, but it was still down 8.7 percent for the quarter.
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