Dow strikes 11,000 as world markets recover on Fed easing hopes following soft jobs report

By Pan Pylas, AP
Friday, October 8, 2010

Dow strikes 11,000 as world markets recover

LONDON — The Dow Jones index breached the 11,000 mark for the first time since May as world stocks recovered Friday on mounting expectations that the Federal Reserve will ease monetary policy further next month following weak U.S. jobs data.

While the prospect of more dollars in the system helped support stock markets — the new money will look for a home — it kept the pressure on the U.S. currency ahead of a key meeting of finance ministers in Washington, D.C.

In Europe, the FTSE 100 index of leading British shares closed down 4.52 points, or 0.1 percent, at 5,657.61 while Germany’s DAX rose 15.42 points, or 0.3 percent, at 6,291.67. The CAC-40 in France ended down 7.29 points, or 0.2 percent, at 3,763.18.

In the U.S., the Dow Jones industrial average was up 52.29 points, or 0.5 percent, at 11,000.87 around midday New York time, the first time it has broken above 11,000 since early May. Meanwhile the broader Standard & Poor’s 500 index rose 5.35 points, or 0.5 percent, at 1,163.41.

Wall Street had been predicted to open lower until the news that overall nonfarm payrolls in the U.S. fell by a greater than anticipated 95,000 in September, despite a 64,000 increase in private sector jobs.

The worse than expected data shored up predictions that the Fed will resume asset purchases to help the economy in the next few weeks — the most likely date is thought to be Nov. 3 at the conclusion of its next rate-setting meeting.

“September’s payroll report adds to the evidence that the recovery is losing what little forward momentum it had and will harden the resolve of the more dovish Fed officials to press forward with another round of quantitative easing,” said Paul Ashworth, senior U.S. economist at Capital Economics.

Stocks have been buoyed since Tuesday’s decision by the Bank of Japan to cut its interest rate to near zero percent and prepare a 5 trillion yen ($60 billion) fund to buy government bonds to prop up the faltering Japanese economy. Investors concluded that the Fed will likely be the next central bank to effectively start up the printing presses again.

While stocks have risen, the dollar has been hit hard by the prospect there will be more dollars swirling around the financial system. At one stage on Thursday, the euro pushed back above $1.40 for the first time in eight months while the dollar sank below the level that had prompted the Bank of Japan to intervene in the markets last month to rein in the export-sapping appreciation of the yen.

However, since then, the dollar has steadied somewhat against the euro and by late afternoon London time, the euro was up 0.1 percent at $1.3929. The dollar was still being sold heavily against the yen, though and was trading 0.6 percent lower at 81.83 yen, just above an earlier 15-year low of 81.74 yen.

Now that the jobs data are out of the way, traders across all financial assets will be monitoring developments in Washington D.C. as the finance ministers from the Group of 20 leading industrial and developing countries meet ahead of the half-yearly meetings of the International Monetary Fund and the World Bank.

The volatility in the currency markets will clearly form the backdrop of the discussions but analysts do not expect any dramatic moves apart from the usual lambasting of China’s currency policy. China effectively keeps its currency artificially low against the dollar in order to boost exports, which in the process is blamed for the imbalances in the global economy.

On Thursday, European Central Bank president Jean-Claude Trichet appeared to voice some concerns about the recent ascent in the value of the euro, when he said that currency rates should reflect the fundamentals and that excessive volatility risked damaging economic growth.

Meanwhile, the latest U.S. quarterly corporate earnings season kicked off Thursday, with better than expected earnings from aluminum company Alcoa Inc.

Earlier in Asia, Japan’s Nikkei 225 stock average lost 75.93 points, or 1.0 percent, to 9,588.88 amid renewed concerns over the yen’s rise — on Thursday, the dollar dropped to a fresh 15-year low of 82.12 yen.

Shares in mainland China jumped, with investors playing catch-up as financial markets reopened after the weeklong National Day holidays. The Shanghai Composite index vaulted 3.1 percent to 2,747.80.

Hong Kong’s Hang Seng index gained 0.3 percent to 22,944.18.

In the commodity markets, gold, which is considered a safe alternative to the dollar, hit another record of $1,366.00 an ounce Thursday before pulling back to $1,348.10, while benchmark crude was up $1.16 at $82.83 a barrel in electronic trading on the New York Mercantile Exchange.


Associated Press Writer Alex Kennedy in Singapore contributed to this report.

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