World stocks rise with hopes that US Federal Reserve will loosen monetary policy

By Pamela Sampson, AP
Wednesday, October 6, 2010

World stocks rise on hopes for Fed policy easing

BANGKOK — World stock markets rallied Wednesday, buoyed by growing expectations that the Federal Reserve will take steps to bolster the U.S. economy following the Bank of Japan’s surprise interest rate cut.

Oil prices went above $83 a barrel, and the dollar fell against the yen and the euro. European stocks opened higher, following a strong day in Asia. London’s FTSE 100 was up 0.7 percent to 5,676.61. Germany’s DAX was up 0.7 percent to 6,259.69 and France’s CAC-40 rose 0.8 percent to 3,763.07.

The Dow — which had its highest finish in five months on Tuesday — was set to rise, with futures up 0.2 percent to 10,886.

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.

Global equity markets surged Tuesday after Japan’s central bank cut its key interest rate target to a range of zero to 0.1 percent, and said it was looking to buy government bonds in an effort to boost the faltering Japanese economy.

The BOJ’s move added to expectations of more action from the Federal Reserve to boost the U.S. economy. Fed Chairman Ben Bernanke said Monday the economy could be helped by another round of asset purchases by the central bank, and hopes are building that the Fed could announce new measures early next month.

“These steps taken by the different governments, and steps taken by the central banks of different governments are seen very positively by traders,” said Lee Kok Joo, head of research at Phillip Securities in Singapore.

Stocks got an additional boost when the Institute for Supply Management reported Tuesday that its index of business activity at U.S. service companies expanded again last month, and far faster than analysts were expecting. Services are the largest part of the U.S. economy.

Still, there was lingering fears that the Bank of Japan’s interest rate cut would not be enough to jump-start the country’s sputtering economy or put brakes on the strong yen.

“There was a knee-jerk reaction to the lowering of interest rates, but that did not really have an effect. The market is still not too confident in the Japanese government’s effort,” Lee said.

Other analysts said the Bank of Japan’s creation of a temporary 5 trillion yen ($60 billion) fund to purchase financial assets such as government securities in an attempt to stimulate the economy did not go far enough.

“We do not believe these measures are likely to have a major impact on the economy or the stock market,” Citigroup said in a report.

Meanwhile, traders were preparing to turn their attention to other indicators being released this week in the U.S., including the monthly jobs survey Friday. Earnings season also gets under way, with Dow component Alcoa Inc. reporting on Thursday.

On Wall Street, the Dow Jones industrial average jumped 193.45 points, or 1.8 percent, to 10,944.72 on Tuesday — the highest finish in nearly five months. The Dow also rallied after a trade group said that activity in U.S. services companies — the nation’s predominant job-generating sector — powered ahead in September

Speculation that the Fed will resume buying U.S. Treasury bonds to push long-term interest rates down weighed on the dollar. The greenback fell to 83.06 against the yen from 83.25 yen in New York late Tuesday. The euro rose to $1.3856 from $1.3832.

Benchmark oil for November delivery was up 30 cents to $83.12 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained $1.35 to settle at $82.82 on Tuesday.

will not be displayed