Brexit deal fuels sterling while stocks edge higher ahead of holiday

By April Joyner

NEW YORK (Reuters) -The British pound rose on Thursday as Britain and the European Union clinched a free trade deal, while a global gauge of stocks edged upward amid investor optimism toward economic growth.

Britain hammered out the final details of a narrow agreement with the EU just seven days before it exits the trading bloc.

Sterling momentarily extended its climb against the dollar on the news, rising as much as 0.94%, but then pared gains. Analysts said the pound's 5% rally since early November meant that much of the Brexit relief had already been priced into the currency. Britain also faces challenges from a new variant of COVID-19.

Still, the pound rose 0.27% to $1.3537.

"The big news here is that the worst-case scenario didn't happen," said Jason Brady, chief executive of Thornburg Investment Management. "There are still some big challenges in the UK economy, and they're doing a pretty aggressive lockdown, which is going to have economic implications."

The trade deal helped European equities edge higher as well. The STOXX index rose 0.12%.

U.S. stocks also advanced slightly in thin volume ahead of the Christmas holiday as investors maintained hopes of economic recovery, despite blocked attempts in Congress to alter a $2.3 trillion coronavirus aid and government spending package. President Donald Trump had previously stated that he might not sign the bill without significant changes.

Optimism about a full-scale roll-out of COVID-19 vaccines next year has largely kept stocks buoyed in despite the delays in further stimulus, said Arnim Holzer, macro and correlation defense strategist at EAB Investment Group. Moreover, he added, investors still expect greater fiscal spending to come under President-elect Joe Biden next year.

"The first thing to recognize is that this is not a full-blown stimulus," he said. "It's really a stop-gap measure. President-elect Biden has stated we still have more work that needs to be done."

MSCI's world equity index ticked up 0.19%.

On Wall Street, the Dow Jones Industrial Average rose 70.04 points, or 0.23%, to 30,199.87, the S&P 500 gained 13.05 points, or 0.35%, to 3,703.06 and the Nasdaq Composite added 33.62 points, or 0.26%, to 12,804.73.

Trading in U.S. stocks and bonds ended early on Thursday, and the markets will be closed on Friday for Christmas.

Among currencies, the dollar index shed earlier losses to rise 0.06% as the pound cut its gains. The euro dipped 0.05% to $1.2181.

U.S. Treasury yields dropped in light volume. Benchmark 10-year Treasury notes rose 9/32 in price to yield 0.9264%, from 0.955% late on Wednesday.

Optimism over the Brexit trade deal kept oil prices steady, despite lingering concerns about a new variant of COVID-19. Brent settled at $51.29 a barrel, up 0.18%, while U.S. crude edged up 0.23% to $48.23 a barrel.

Gold prices rose as investors remained optimistic about U.S. stimulus and the Brexit trade deal kept the dollar's gains in check. Spot gold added 0.3% to $1,877.77 an ounce.

Copper prices were little changed, near their highest levels since 2013, while other industrial metals rose.

(Reporting by April Joyner; Additional reporting by Tommy Wilkes in London, Stanley White in Tokyo and John McCrank in New York; Editing by Kirsten Donovan/Mark Heinrich/Chizu Nomiyama)