World markets up as Dubai contagion fears ease

AP News
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Posted: Dec 01, 2009 11:52 AM

World stock markets rose sharply Tuesday as tensions related to Dubai's debt problems eased, while gold broke through the $1,200 an ounce level for the first time ever amid renewed dollar weakness.

In Europe, the FTSE 100 index of leading British shares closed up 121.49 points, or 2.3 percent, at 5,312.17 while Germany's DAX rose 150.66 points, or 2.7 percent, to 5,776.61. The CAC-40 in France was 95.59 points, or 2.6 percent, higher at 3,775.74.

In the U.S., the Dow Jones industrial average was up 127.95 points, or 1.2 percent, at 10,472.79 around midday New York time while the broader Standard & Poor's 500 index rose 13.12 points, or 1.2 percent, to 1,108.75.

Investors were seemingly reassured that the fallout from Dubai's debt difficulties have been contained for now. Last week, the news that Dubai World, a government investment company with nearly $60 billion of debt, is looking to postpone forthcoming debt payments until May sent shockwaves around financial markets.

"Reports that Dubai is negotiating to restructure $26 billion of debt has lessened the risk of default," said Jane Foley, research director at Forex.com.

European and U.S. stocks briefly came off earlier highs after the Institute for Supply Management reported that the U.S. manufacturing sector grew by less than anticipated in November _ its manufacturing index fell to 53.6 in November from October's 55.7, weaker than analysts' expectations for a dip to 55. Despite the fall, the sector continues to grow, but at a lower pace, as any reading above 50 indicates expansion.

The market impact was mitigated by data from the National Association of Realtors, which said its seasonally adjusted index of sales agreements rose 3.7 percent from September to October to 114.1, its highest reading since March 2006.

It's a busy week on the economic news front, culminating in Friday's U.S. nonfarm payrolls report for November _ the jobs data often set the tone in the markets for a week or two.

If over the week investors conclude that the U.S. economy is losing some steam, then that could well pave the way for an end of year bout of profit-taking following an eight-month bull run.

Earlier in Asia, Japan's Nikkei led the march higher, closing up 226.65 points, or 2.4 percent, at 9,572.20.

After the markets closed, the Bank of Japan said it had decided to keep its benchmark rate unchanged at 0.1 percent and announced it would provide short term loans to banks totaling 10 trillion yen, or $115 billion.

Nothing emerged to directly counter the rise in the yen, which prompted a big fall in the dollar against the Japanese currency. Though the dollar was up 0.4 percent on the day at 86.61 yen in late-afternoon London trade, it had traded as high as 87.53 yen earlier in the day.

Meanwhile, the euro was 0.7 percent higher at $1.5110 and heading up to 16-month highs.

The weakness in the dollar triggered renewed buying of gold as the precious metal is considered a hedge against a falling dollar _ commodity prices and the dollar typically trade inversely.

Gold was trading 1.3 percent higher at $1,198 an ounce, off its earlier all-time high of $1,200.50.

Elsewhere in Asia, Hong Kong's Hang Seng gained 291.65 points, or 1.3 percent, to 22,113.15 and South Korea's Kospi rose 14.12, or 0.9 percent, to 1,569.72 after the government said exports rose from a year earlier in November for the first time in 13 months.

Elsewhere, Australia's benchmark added 0.4 percent, Singapore's market was up 1.1 percent and China's Shanghai index rose 1.3 percent.

Oil prices rose above $78 a barrel as the dollar weakened. Benchmark crude for January delivery was up $1.54 at $78.82 in electronic trading on the New York Mercantile Exchange.

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