World stocks surge after forecast-busting manufacturing survey

By Pan Pylas, AP
Wednesday, September 1, 2010

US manufacturing data gives stocks a big boost

LONDON — Stock indexes surged in Europe and on Wall Street after an unexpectedly strong U.S. manufacturing survey further eased tensions about the global economic recovery.

Hot on the heels of an upbeat manufacturing report in China and forecast-busting Australian economic growth, shares were enjoying one of their best days in months, following a disappointing August.

In Europe, the FTSE 100 index of leading British shares closed up Wednesday at 141.19 points, or 2.7 percent, at 5,366.41 while Germany’s DAX spiked 158.68 points, or 2.7 percent, to 6,083.90. The CAC-40 in France did best, ending up 135.05 points, or 3.8 percent, at 3,623.84.

In the U.S., the Dow Jones industrial average was up 247.49 points, or 2.5 percent, at 10,262.21 in midday trading New York time while the broader Standard & Poor’s 500 index rose 29.43 points, or 2.8 percent, at 1,078.76.

Shares were already trading higher following earlier Asian gains but the buying momentum accelerated after the closely watched manufacturing survey from the Institute for Supply Management beat expectations by a mile.

Its main purchasing managers index — a gauge of business activity — jumped to a three-month high of 56.3 in August from 55.5 in July, in contrast to market expectations for a drop to around 53. A reading above 50 indicates expansion.

The ISM survey has proved to be a huge relief to the markets following a month or two of generally disappointing economic data and comes ahead of Friday’s closely watched nonfarm payrolls figures for August loom into view.

“The data marked a most distinctive break with recent weak summer data,” said Alan Ruskin, an analyst at Deutsche Bank.

The payrolls data often set the market tone for a week or two, and anything particularly weak could affect whether the Fed decides to introduce additional stimulus measures. At the moment, market consensus is that around 90,000 U.S. jobs were lost in August, but that 30,000 were added, if government census jobs that ended are taken out of the equation. Meanwhile, the unemployment rate is expected to hold steady at 9.5 percent or even rise to 9.6 percent.

Despite the positive U.S. economic data, Wednesday’s had its roots in the Asian trading session.

In China, figures from the state-affiliated China Federation of Logistics and Purchasing showed manufacturing growth up for the first time in four months in August. It said its purchasing managers index — a gauge of business activity — rose to 51.7 in August from 51.2 in July. Numbers above 50 show manufacturing activity expanding

Investors were also cheered by figures showing that Australia’s economy grew a seasonally adjusted 1.2 percent in the April-June quarter as demand from China and elsewhere in Asia boosted exports of iron ore and other commodities. The rise, the highest for three years, was more than the 0.9 percent anticipated in the markets.

Australia’s S&P/ASX 200 index, jumped 2.1 percent to 4,495.70 after the growth figures, though China’s Shanghai index dropped 0.6 percent to 2,622.88 as many mainland investors doubted the uptick means the slowdown in China’s rapid growth has been halted.

Meanwhile, Japan’s Nikkei 225 stock average recovered some of Tuesday’s sharp declines — it closed 102.96 points, or 1.2 percent, at 8,927.02 after hitting a 16-month closing low the previous day.

Elsewhere in Asia, Hong Kong’s Hang Seng index rose 0.4 percent to 20,623.83 and South Korea’s Kospi advanced 1.3 percent to 1,764.69.

One outcome of the rebound in stock markets has been a big rise in the euro against the dollar. Over recent weeks, the euro’s fortunes have directly followed the fortunes of stocks — when investors’ appetite for risk is high, they buy shares and move away from the dollar and the yen, widely-considered to be safe haven assets.

By late-afternoon London time, the euro was 1 percent higher at $1.2804.

Meanwhile, the dollar was 0.4 percent higher at 84.46 yen, not far off its 15-year low of 83.61 yen, which was struck last week.

Alongside the perkier stock market tone, oil prices rallied.

Benchmark crude for October delivery was up $2.35 at $74.27 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.78 to settle at $71.92 a barrel on Tuesday.

AP Business Writer Kelly Olsen in Seoul, South Korea contributed to this report.

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