US stocks gained on Thursday, reversing earlier losses, led by the semiconductor sector, while US short-term Treasuries were steady, benefiting from safe-haven bids amid troubles in the subprime mortgage market.
The US subprime mortgage sector was still at the center of investor worries after several Wall Street banks unwound positions in two Bear Stearns Cos hedge funds heavily invested in securities backed by the riskiest US home loans.
"The reality is that the flight to quality quotient that is in the market is all about the front-end," said Jim Caron, co-head of global rates research with Morgan Stanley in New York.
Two-year Treasury notes, were steady with a 4.98 per cent yield, unchanged from late Wednesday.
On Wall Street, stocks headed higher after several brokerage upgrades on microchip makers sent the semiconductor sector to a one-year high. The Philadelphia Stock Exchange Semiconductor Index jumped 2.9 per cent, climbing to its highest since May 2006.
The Dow Jones industrial average was up 38.29 points, or 0.28 per cent, at 13,527.71 in late afternoon trading. The Standard & Poor's 500 Index rose 8.22 points, or 0.54 per cent, to 1,521.06. The Nasdaq Composite Index was up 18.28 points, or 0.70 per cent, at 2,618.24.
Gains on Wall Street countered losses in Europe, where stock indexes fell sharply, while a benchmark index for the euro zone's corporate credit markets showed default swap spreads widening sharply, suggesting investors were growing more wary of risk.
The pan-European FTSEurofirst 300 index fell 1 per cent to 1,604.18, moving away from Monday's 6-1/2-year peak.
Reflecting concerns about the US high-risk lending sector, implied volatility on the iTraxx indexes of credit default swaps rose to 53 per cent, compared with 44 per cent on Wednesday.