World stocks buoyed by Fed, upbeat US earns as euro drops below $1.40 on Portugal debt fears

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World markets supported by Fed, upbeat US earns

LONDON — World stock markets recovered their poise Thursday after the U.S. Federal Reserve indicated that interest rates would not rise soon, while the euro fell below $1.40 as currency traders started to fret about the public finances in Portugal as well as those of Greece.

President Barack Obama’s focus on the economy in his first State of the Union speech and a seemingly less hostile attitude to the banks in the speech, coupled with further upbeat U.S. corporate earnings reports, also helped.

In Europe, the FTSE 100 index of leading British shares was up 23.21 points, or 0.4 percent, at 5,240.66 while Germany’s DAX rose 19.99 points, or 0.4 percent, to 5,663.19. The CAC-40 in France was 26.50 points, or 0.7 percent, higher at 3,786.30.

A solid opening is expected for Wall Street — Dow futures were up 36 points, or 0.4 percent, at 10,231 while the broader Standard & Poor’s 500 futures rose 5.1 point, or 0.5 percent, to 1,099.70.

Concerns about the debt situation in a number of European countries continued to hit the euro. Currency traders will be focused on whether the dip below $1.40 is sustained or whether it proves temporary, as it did Wednesday.

Portugal, in particular, is now being viewed with suspicion in the markets, especially after credit ratings agency Moody’s said “a credible plan for deficit reduction will be needed to ensure the government’s ability to reverse its adverse debt dynamics, and in turn to avoid further downward pressure on its ratings.”

Moody’s last rating action on Portugal was implemented in October 2009, when the rating agency placed a negative outlook on the government’s Aa2 bond ratings.

“Sovereign debt risk in the eurozone area remains a key theme and the focus can shift to Spain and Portugal where there has also been a sharp deterioration in budget deficits and debt levels,” said Neil Mackinnon, global macro strategist at VTB Capital.

“All of this is likely to keep weighing on the euro where the trade-weighted exchange rate is now close to virtually giving up most of its 2009 gains,” he added.

By mid afternoon London time, the euro was 0.2 percent lower at $1.3992 even though figures from the European Commission showed economic sentiment in the 16-country single currency zone up for the ten-month running in January.

Meanwhile, the dollar was 0.1 percent higher at 89.99 yen and benchmark crude oil for March deliver rose 53 cents to $74.20 a barrel.

Stocks around the world had been in retreat for most of the last week in the wake of Obama’s announcement that he plans to impose restrictions on banks more risky trading activities as well as mounting speculation that China is looking to rein in bank lending to prevent a nasty inflationary spike.

But the stock market tone has been broadly positive ever since the Fed’s policy statement on Wednesday, which was issued towards the end of the trading day on Wall Street.

The Fed said “economic activity has continued to strengthen” since its last meeting in December even though it failed to repeat its previous assertion that the housing market was improving.

Despite that, the majority of the Federal Open Market Committee signed up to retaining the commitment to keep interest rates at “exceptionally low levels…for an extended period.”

Nevertheless, the improving economic picture was enough to prompt Kansas City Fed president Thomas Hoenig to argue that the “conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.”

For stock market investors, the prospect of U.S. interest rates staying at between zero and 0.25 percent for a few more months to come was enough to prompt some buying.

Also fueling the modest uptick in optimism was the President’s vow to focus political attention on the U.S. economy.

“Obama’s State of the Union address focused clearly on the issue of job creation, the lack of any firm detail on his banking proposals and his statement that he was not out to punish the banks overnight offered sufficient encouragement to the markets to extend the better mood,” said Jane Foley, research director at Forex.com.

And a batch of solid earnings from the likes of Ford Motor Co. and consumer product makers Colgate-Palmolive and Procter & Gamble Co. also helped support markets heading into the U.S. open.

In Asia Japan’s Nikkei 225 stock average jumped 162.21 points, or 1.6 percent, to 10,414.29 and Hong Kong’s Hang Seng added 323.30 points, or 1.6 percent, 20,356.37. South Korea’s Kospi advanced 1 percent to 1,642.43.

Elsewhere, Shanghai’s market was up 0.3 percent, Australia added 0.6 percent and India’s index ticked up 0.1 percent. Taiwan’s market gained 1.8 percent.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.