Upbeat US data gives stocks a further boost as dollar slides to 8 month euro low

By Pan Pylas, AP
Tuesday, October 5, 2010

Stocks surge after upbeat US data as dollar slides

LONDON — Global stock markets surged Tuesday after a better than expected U.S. economic survey gave a big boost to investor sentiment, which had earlier been buoyed by the Bank of Japan’s surprise decision to ease monetary policy further.

Rising expectations that the U.S. Federal Reserve will soon join the Bank of Japan in enacting fresh stimulus measures, despite the better than expected survey from the Institute for Supply Management, hit the dollar, which slid to an eight-month low against the euro.

In Europe, the FTSE 100 index of leading British shares closed up 79.79 points, or 1.4 percent, at 5,635.76 while Germany’s DAX rose 81.62 points, or 1.3 percent, to 6,215.83. The CAC-40 in France ended 82.12 points, or 2.3 percent, higher at 3,731.93.

In the U.S., the Dow Jones industrial average was up 163.67 points, or 1.5 percent, at 10,914.94 around midday New York time, while the broader Standard & Poor’s 500 index rose 20.25 points, or 1.8 percent, to 1,157.28.

Stocks in Europe and the U.S. had been up all day after Japan’s benchmark Nikkei 225 stock average reversed early losses to close 1.5 percent higher at 9,518.76. The rally came after the country’s central bank cut its key interest rate to a range of zero to 0.1 percent and said it may set up a 5 trillion yen ($60 billion) fund to buy government bonds and other assets in its latest attempt to prop up the faltering Japanese economy.

Market gains gathered pace after a forecast-busting survey into the U.S. services sector from the Institute for Supply Management. Its main index jumped to 53.2 in September from August’s 2010 low of 51.5, and was ahead of analysts’ expectations for a more modest increase to 52.

The rise means that the sector is growing more rapidly and that recent fears of a return to recession may have been too pessimistic — any reading over 50 indicates expansion.

“The ISM report fits in nicely with recent U.S. data indicating that a double dip is not in the offing this year,” said Michael Woolfolk, an analyst at Bank of New York Mellon.

The ISM survey kicked off a run of U.S. economic data which could have a bearing on whether the Fed takes further action to stimulate the U.S. economy.

Most important will be Friday’s jobs data, which often set the market tone for a week or two after their release in any case. Most economists now think that the Fed is ready to announce further measures at the beginning of next month.

It’s not just economic indicators in the spotlight. As well as the start of the quarterly earnings reporting season on Thursday — aluminum company Alcoa Inc. is the first major company to report — a number of the world’s major central banks are meeting. On Thursday, when both the European Central Bank and the Bank of England meet.

Because the European Central Bank is not expected to enact any new measures anytime soon, the dollar has fallen heavily against the euro. By late afternoon London time, it was trading 1.1 percent higher at $1.3836, just shy of its earlier eight month high of $1.3856.

The Bank of Japan was the first to meet and surprised the markets with its policy decisions, which are largely intended to rein in the export-sapping appreciation of the yen.

If that was the ultimate intention of the policy decisions, then it hasn’t worked.

By late afternoon London time, the dollar was down 0.3 percent on the day at 83.17 yen — not too much higher than the 82.87 yen 15-year low that forced the Bank of Japan to intervene directly in the markets in mid September.

Derek Halpenny, European head of global currency research at the Bank of Tokyo-Mitsubishi UFJ, said the Bank of Japan’s decisions lacked the impact of recent monetary packages introduced by the U.S. Federal Reserve, the Bank of England or even the Swiss National Bank.

“In a world of ’shock and awe’ central bank monetary policy decisions the announcement of the BoJ to purchase 5 trillion yen of financial assets is very disappointing,” said Halpenny.

Elsewhere in Asia, Hong Kong’s Hang Seng index added 0.1 percent to 22,639.14 and South Korea’s Kospi was fractionally lower at 1,878.94. Australia’s S&P/ASX 200 shed 0.4 percent to 4,606.90, reducing losses after the country’s central bank left its main interest rate unchanged.

Benchmark oil for November delivery was up $1.06 to $82.53 a barrel in electronic trading on the New York Mercantile Exchange.


Associated Press Writer Pamela Sampson in Bangkok contributed to this report.

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