Fed easing hopes sustain stocks but hits dollar hard

By Pan Pylas, AP
Wednesday, October 6, 2010

Fed easing hopes sustain stocks but hits dollar

LONDON — Stock markets rallied further Wednesday despite disappointing U.S. jobs data as investors continued to predict that the Federal Reserve would join the Bank of Japan in enacting fresh stimulus measures.

Expectations of more dollars in the system may be a boon to stocks, but they’re certainly a drain on the dollar, which slid to a fresh eight-month low against the euro and a new 15-year low against the yen.

In Europe, the FTSE 100 index of leading British shares closed up 45.63 points, or 0.8 percent, at 5,681.39 while Germany’s DAX rose 54.90 points, or 0.9 percent, at 6,270.73. The CAC-40 in France ended 32.98 points, or 0.9 percent, higher at 3,764.91.

In the U.S., the Dow Jones industrial average was up 26.34 points, or 0.2 percent, at 10,971.06 around midday New York time, while the broader Standard & Poor’s 500 index was up less than a point at 1,161.32.

Wednesday’s gains in Europe and the U.S. were dwarfed by those generated in the previous session as investor optimism about the pace of the U.S. economic recovery took a hit from a monthly survey from private payrolls firm ADP, showing that U.S. employers shed 39,000 jobs during September, in contrast to market expectations for a 20,000 or so increase.

“Expectations over Friday’s nonfarm payroll figures will certainly be lowered,” said Michael Woolfolk, an analyst at Bank of New York Mellon.

In most months, the payrolls data often set the market tone for a week or two after their release. This time, they may be even more important than usual — most economists think that the Fed is ready to announce further measures at the beginning of next month as the figures are not expected to show the U.S. economy creating a significant amount of jobs.

Expectations of further action by the Fed underpinned Tuesday’s big stock market gains around the world.

The catalyst to the rally was the Bank of Japan’s surprise decision Tuesday to cut its key interest rate to a range of zero to 0.1 percent. More importantly in the context of the world economy, the bank said it was paving the way for a 5 trillion yen ($60 billion) fund to buy government bonds and other assets to prop up the faltering Japanese economy.

“What they have done has served to reinforce the belief that the Federal Reserve will soon start up the printing presses and resume asset purchases of some form or other in the next few weeks,” said Michael Hewson, market analyst at CMC Markets.

All this is having a dramatic impact on the dollar.

By late afternoon London time, the euro was up 0.6 percent on the day at $1.3920, just shy of its earlier eight-month high of $1.3925. Meanwhile, it was 0.4 percent lower at 82.87 yen, just above its earlier 15-year low of 82.77 yen.

The markets are on the lookout for another intervention by the Bank of Japan. Last month, it bought dollars when it had fallen to 82.87 yen in an attempt to stem the export-sapping appreciation of the Japanese currency and past experience indicators that it’s likely to weigh in again.

Besides economic indicators, the quarterly earnings reporting season begins 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, both the European Central Bank and the Bank of England meet.

In Asia, Japan’s benchmark Nikkei 225 stock average closed up 1.8 percent, or 172.67 points, at 9,691.43 after surging 1.5 percent the previous day.

South Korea’s Kospi rose 1.3 percent to 1,903.95. Australia’s S&P/ASX 200 was up 1.7 percent at 4,686.8 and Hong Kong’s Hang Seng jumped 1 percent to 22,880.41.

Markets in Malaysia, New Zealand, Singapore, Bombay and Taiwan also advanced. Financial markets in mainland China are closed through Oct. 7 for the National Day holidays.

Benchmark oil for November delivery was up 14 cents to $82.96 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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