Jan 2, 2015/Bloomberg

The euro weakened to a 4 1/2 year low, bond yields from Italy to Spain fell to records and stocks rose amid speculation the European Central Bank will boost stimulus. U.S. index futures gained with the dollar.

The euro lost 0.4 percent at 8:05 a.m. in London, while the yen slumped 0.6 percent and the Bloomberg Dollar Spot Index gained 0.4 percent. The Stoxx Europe 600 Index advanced 0.5 percent, while contracts on the Standard & Poor’s 500 Index climbed 0.7 percent. Ten-year yields on Italian bonds fell six basis points to 1.806 percent, while the yield premium on Spanish debt over that of Germany shrank to the least since 2010. Crude in New York advanced 0.5 percent.

ECB President Mario Draghi said he can’t exclude the risk of deflation in the euro area, hinting that the likelihood of large-scale quantitative easing is increasing. The dollar is extending gains after its best year since at least 2005, while the S&P 500 climbed 11 percent in 2014 and Treasuries returned the most in three years. Investors piled into U.S. assets as the Federal Reserve pledged patience in raising interest rates and economic growth accelerated.

“While the Fed is not going to rush into any action, rates will go up,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “The market is very long the dollar against the yen and the euro, and across the board.”

The euro touched $1.2035, its lowest level since June 10, 2010, after completing its worst annual loss since 2005. Spanish 10-year yields dropped to a record-low 1.53 percent, narrowing the premium over equivalent-maturity German bunds to 99 basis points.

Draghi Comments

“The risk that we don’t fulfill our mandate of price stability is higher than it was six months ago,” Draghi said in an interview with German newspaper Handelsblatt. “We are in technical preparations to alter the size, speed and composition of our measures at the beginning of 2015, should this become necessary, to react to a too-long period of low inflation. There’s unanimity in the ECB council on that.”

The U.S. currency gained versus all of its 16 major peers, while the Bloomberg dollar gauge headed for its highest close since March 2009. The Markit Economics index of U.S. manufacturing probably rose to 54 from a preliminary 53.7 reading, according to economists polled by Bloomberg.

The yen retreated to 120.46 against the U.S. currency. The Australian dollar declined 0.6 percent to 81.34 U.S. cents. A Chinese factory gauge slipped to the lowest level in 18 months, data released yesterday showed, adding pressure on policy makers to do more to support growth in the world’s second-biggest economy.

Chinese Stocks

Indonesia’s rupiah depreciated 1.20 percent, poised for its biggest loss since Dec. 15, and Malaysia’s ringgit weakened 0.6 percent. The Swiss franc dropped 0.3 percent.

Equity markets in Japan, China, Taiwan, New Zealand, Thailand and the Philippines are closed today.

The Hang Seng Index gained 1.1 percent at the close, while the Hang Seng China Enterprises Index of mainland companies traded in Hong Kong rallied 2.2 percent as financial shares jumped. Nikkei 225 Stock Average futures traded on the Chicago Mercantile Exchange rose 1.1 percent to 17,595.

China Vanke Co. surged 11 percent and People’s Insurance Company (Group) of China Ltd. advanced 6.6 percent amid optimism the government will ease monetary policy to bolster growth in the world’s second-largest economy. Galaxy Entertainment Group Ltd. (27) led declines by casino companies after Macau gambling revenue fell 2.6 percent last year.

Bond Default

Bonds of Kaisa Group Holdings Ltd. slid to record lows after the Chinese developer defaulted on a loan. Automatic repayment of a HK$400 million ($51.6 million) loan from HSBC Holdings Plc was triggered when its chairman resigned on Dec. 31, the company said.

West Texas Intermediate crude rose 26 cents to $53.53 a barrel. Silver futures for March delivery climbed 1.6 percent to $15.85 an ounce, after tumbling 4.2 percent on the last day of the year. Copper headed for its lowest close since June 2010. Tin dropped 1.3 percent.

China’s Purchasing Managers’ Index fell to 50.1 in December from 50.3 in November. That compared with a median estimate of 50 in a Bloomberg News survey of analysts. A separate manufacturing index by HSBC Holdings Plc and Markit Economics also declined.