World markets rally as gold strikes new high

AP News
Posted: Nov 23, 2009 11:58 AM

World markets rose sharply Monday amid further hopeful signs about the global economic recovery. Commodity stocks led the charge, particularly in London, after gold hit another record high.

In Europe, the FTSE 100 index of leading British shares closed up 104.09 points, or 2 percent, at 5,355.50 while Germany's DAX rose 138.33 points, or 2.4 percent, to 5,801.48. The CAC-40 was 83.81 points, or 2.3 percent, higher at 3,813.17.

In the U.S., the Dow Jones industrial average was up 146.54 points, or 1.4 percent, at 10,464.70 around midday New York time while the broader Standard & Poor's 500 index rose 17.79 points, or 1.6 percent, to 1,109.17.

Sentiment was buoyed by solid economic data in both Europe and the U.S.

In Europe, figures showed that the economic recovery is gathering pace in the 16 countries that use the euro. The monthly composite purchasing managers index _ a broad gauge of business activity in the manufacturing and services sector _ rose to 53.7 in November from October' 53.

Any reading above 50 indicates expansion and the bigger the difference from 50 the greater the expansion _ figures recently confirmed that the recession in the eurozone economy ended in the third quarter, though growth was muted.

In the U.S., the National Association of Realtors said existing home sales in October rose by 10.1 percent to an annual rate of 6.1 million units _ a two and a half year high _ as buyers took advantage of a tax credit. Nevertheless, the increase was way more than expected and fueled the optimism on Wall Street, which had already opened higher on the back of the strong gains in Europe.

Much of Monday's activity centered on commodity stocks as the price of gold spiked $22 an ounce, or 1.9 percent, to a new record of $1,170.

Gold was boosted by a drop in the dollar's value after U.S. Federal Reserve official James Bullard said the central bank should continue to buy mortgage-backed securities after the program is supposed to expire in March. Bullard is expected to join the Fed's rate-setting body next year.

As a result, the minutes to the last rate-setting meeting of the Fed _ due to be published Tuesday _ will be pored over for any clues as to whether the purchases will continue after the planned March deadline.

Any suggestion that the Fed will maintain its extraordinary monetary policy measures for longer than previously anticipated heaps pressure on the dollar _ by late afternoon London time, the euro was up 0.8 percent at $1.4980, having earlier breached the $1.50 mark for the first time in a week.

The falling dollar makes gold more attractive to international investors and as a result, commodity stocks were heavily in demand, particularly on London's FTSE 100, where a number of resource companies are listed _ near the top of the leaderboard were Kazakhmys PLC, Lonmin PLC and Rio Tinto PLC.

With Thursday's Thanksgiving Day holiday approaching, there are doubts that stocks will be able to sustain their march ahead for too long _ many analysts think investors will start taking profits on the rally at some point.

"There's still that lingering degree of caution as to whether stocks can continue to push much higher in general and with a relatively quiet few days ahead, combined with traders in the U.S. winding down for the Thanksgiving holiday, this issue is set to be played out yet again," said Ben Potter, research analyst at IG Markets in Melbourne, Australia.

Stock markets have rallied strongly since March's lows as investors reined in their economic doomsday expectations to factor in a swifter than anticipated global economic rebound, but disappointing U.S. housing figures and mixed earnings from some of the country's leading technology companies and retailers dented the optimism last week.

Earlier, Hong Kong's Hang Seng index gained 315.55, or 1.4 percent, to 22,771.39 while South Korea's Kospi fell 1.55, or 0.1 percent, to 1,619.05.

Elsewhere, Australia's index gained 0.7 percent and China's Shanghai benchmark rose 0.9 percent. Markets were lower in Indonesia, Malaysia, Thailand, New Zealand and the Philippines.

Japan was closed for a public holiday.

Meanwhile, oil prices rose as Iran started five days of air defense war games aimed at protecting its nuclear facilities from attack. Benchmark crude for January delivery was up $1.93 at $79.40 on the New York Mercantile Exchange.


AP Business Writer Kelly Olsen in Seoul, South Korea contributed to this report.