World stock markets surge as S&P strikes four-month high ahead of Federal Reserve meeting

By Pan Pylas, AP
Monday, September 20, 2010

World markets surge as S&P strikes four-month high

LONDON — A new four-month high in the Standard & Poor’s 500 index in the U.S. helped shore up confidence in the markets Monday, a day before the latest policy statement from the U.S. Federal Reserve, where investors will be looking out for any hints over further measures to boost the U.S. economy.

In Europe, the FTSE 100 index of leading British shares closed up 94.09 points, or 1.7 percent, at 5,602.54 while Germany’s DAX rose 84.20 points, or 1.4 percent, to 6,294.58. The CAC-40 in France ended 65.99 points, or 1.8 percent, higher at 3,788.01.

In the U.S., the Dow Jones industrial average was up 109.82 points, or 1 percent, at 10,717.67 around midday New York time while the broader Standard & Poor’s 500 rose 12.53 points, or 1.1 percent, at 1,138.12.

The broad S&P — often considered a better gauge of the U.S. economy than its better known but narrower peer on Wall Street — has broken through a trading range that has held since the middle of May, and that helped stocks push even higher.

The big gains posted Monday come a day before the Fed returns to the center of market attention. Though it is expected to leave its key interest rate unchanged at near zero, the main focus will be on any comments the rate-setting Federal Open Market Committee says about the possibility it may start buying more bonds to help stimulate the economy.

However, most analysts — even those advocating further stimulus — think that it’s extremely unlikely that anything will emerge this week, especially as the economic newsflow over the last couple of weeks, particularly with regard to the U.S. jobs market, has not been as bad as what had come before.

“Keep in mind that Fed chairman Ben Bernanke had previously mentioned that the Fed must see economic data deteriorate significantly in order to take further action, which we have not seen recently,” said Eric Viloria, an analyst at

Speculation about action from the Fed has weighed on the dollar, which last week dropped to a five-week low against the euro. By late afternoon London time, the euro was trading 0.2 percent higher at $1.3078.

The other overarching theme this week is likely to be the deficit problems afflicting a number of the euro area’s countries. There are mounting concerns over Ireland in particular following reports that the European Central Bank intervened last week to stabilize Irish bond markets and rumors that the country may follow Greece in needing financial help from the International Monetary Fund, rumors denied by both Ireland and the IMF.

Ireland and Portugal are both set to sell bonds this week and any disappointment here could well reignite concerns over the government debt crisis that afflicted the single currency zone for much of the first half of this year.

“In the eurozone….the main risk is surely the Irish banking crisis where things look ugly,” said Neil MacKinnon, global macro strategist at VTB Capital.

Earlier, trading in Asia was more subdued earlier, partly because there will be a number of holidays over the coming week. Japan was off Monday and will be closed again on Thursday, while mainland China will be closed Wednesday through Friday. Hong Kong, South Korea, Taiwan and the Philippines also have closures during the week.

Ben Potter, market strategist at IG Index, said traders were “reluctant to overcommit in a week that is peppered with holidays.”

The Shanghai Composite Index slipped 0.4 percent to 2,588.71 while South Korea’s Kospi gained 0.3 percent to 1,832.63. Hong Kong’s Hang Seng added less than 0.1 percent to 21,977.34.

Though share trading may be limited this week, the currency markets will remain open and traders will be on the lookout for any further intervention by the Bank of Japan to weaken the yen.

Last week, the Bank of Japan bought dollars and sold yen for the first time in six years as it tried to stem the export-sapping appreciation of its currency.

In the short run it worked — the dollar rose from its 15-year low of 82.87 yen to trade consistently above 85 yen. By late afternoon London time, the dollar was 0.1 percent lower at 85.66 yen.

The sentiment boost in the stock markets was evident in oil markets too, with benchmark crude for October delivery up $1.31 at $74.97 a barrel in electronic trading on the New York Mercantile Exchange.

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