World stock markets rebound, but investors remain wary of European debt crisis

By Carlo Piovano, AP
Wednesday, May 26, 2010

World stocks up, but traders wary on Europe debt

LONDON — World stock markets rebounded Wednesday following steep losses the previous day and helped by strong U.S. economic data, but sentiment remained fragile amid fears Europe’s debt crisis could hamper global economic growth.

Britain’s FTSE 100 was up 3.1 percent at 5,091.21, Germany’s DAX rose 2.7 percent to 5,820.59 and France’s CAC-40 was up 3.3 percent at 3.441.10.

Asian stocks closed higher and Wall Street also gained on the open — the Dow industrials average was up 1.1 percent at 10,156.51 while the Standard & Poor’s 500 was 1.4 percent higher at 1,088.69.

The increases make up for most of the losses on Tuesday, when investors feared the repercussions of painful austerity measures on Europe’s economic growth and the knock-on impact on trading partners like the U.S. and Japan.

The forced merger of a troubled savings bank in Spain has raised the fear of wider troubles in the banking sector and a freeze in credit markets like the one that accompanied the financial crisis in 2007 and 2008.

Mitul Kotecha, analyst at Credit Agricole CIB, said that the overnight recovery in market sentiment was encouraging, “indicating that the move in markets over recent weeks has not turned into a rout.”

He said some investors were looking for cheap stocks because while some sectors — such as Europe’s banks — were likely to be hurt by the effects of the debt crisis, others would hold up well.

The economic data for the second quarter has largely been stronger than expected, Kotecha noted.

In fact, U.S. official data showed orders for big-ticket manufactured goods rose 2.9 percent last month, more than double the 1.3 percent gain forecast by economists. The news is encouraging because U.S. consumer spending accounts for a fifth of the global economy.

Earlier, the Organization for Economic Cooperation and Development raised its forecasts for growth in the world’s 31 most developed countries. While it said global trade and growth in Asia would help the recovery, it also noted that the global economy was yet to stabilize and that risks lingered — as highlighted by Europe’s debt crisis.

German consumer confidence, in fact, continue to slide, according to a survey by the GfK institute. After a rise in April, sentiment is expected to fall for a second month in June as consumers in Europe’s largest economy fret about the highly unpopular bailout for Greece and the volatile euro exchange rate.

European governments, meanwhile, pushed ahead in their effort to tackle their debt loads. Italy passed €24 billion ($30 billion) in budget cuts for the 2011-2012 period while Greece is considering selling an array of state assets to raise much-needed cash.

In Asia, Japan’s benchmark Nikkei 225 stock average closed 0.7 percent higher at 9,522.66 after tumbling 3.1 percent to a six-month low Tuesday.

South Korea’s Kospi index gained 1.4 percent to 1,582.12 while Australia’s S&P/ASX 200 index was up 1 percent. Hong Kong’s Hang Seng index rose 1.1 percent while benchmarks in mainland China, Singapore, India, Indonesia and Taiwan also gained.

Apart from worries over Europe’s fiscal crisis, Asian markets have been hit by escalating tensions on the Korean peninsula after North Korean leader Kim Jong Il reportedly ordered his military to prepare for combat.

South Korea last week blamed North Korea for a March torpedo attack that sank a South Korean warship, killing 46 sailors.

The dollar edged up to 90.52 yen in Tokyo from 90.32 yen in New York late Tuesday. The euro declined to $1.2267 from $1.2372.

Benchmark crude for July delivery was up $1.826 at $70.57 a barrel in electronic trading on the New York Mercantile Exchange.

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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