Stocks remain supported by Fed easing hopes

AP News
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Posted: Oct 11, 2010 11:49 AM
Stocks remain supported by Fed easing hopes

Global stock markets rose Monday amid expectations that the Federal Reserve will decide to pump more money into the U.S. economy next month.

In Europe, the FTSE 100 index of leading British shares closed up 14.79 points, or 0.3 percent, at 5,672.40 while Germany's DAX rose 17.84 points, or 0.3 percent, to 6,309.51. The CAC-40 in France ended 5.31 points, or 0.1 percent, higher at 3,768.49.

In the U.S., the Dow Jones industrial average was up around 4 points at 11,010.75 around midday New York time while the broader Standard & Poor's 500 index was a point higher at 1,166.22.

Trading volumes are extremely light as the Columbus Day holiday in the U.S. has prompted a number of investors to stay away _ though stock markets in the U.S. are open, bond markets are closed as are all government departments.

The Dow closed above 11,000 last Friday for the first time since early May as a soft U.S. jobs report for September reinforced market expectations that the Fed may announce further stimulus measures at the conclusion of its next rate-setting meeting on November 3.

The payrolls figures showed that the U.S. economy is not generating enough private sector jobs to get the unemployment rate substantially down from its current level of 9.6 percent.

It's now thought to be a near certainty that the Fed will announce its second round of so-called quantitative easing, which would involve the purchase of financial assets from the banks in an attempt to further drive down rates on mortgages, corporate loans and other debt in the ultimate hope of boosting economic activity and supporting prices.

"Investors seem to be pricing in more quantitative easing from the US and seem happy to push stocks out to higher levels on the back of this, even though the economic fundamentals can appear shaky from time to time," said Yusuf Heusen, senior sales trader at IG Index.

Though the financial markets have largely discounted the prospect of further asset purchases from the Fed, there are still question marks hanging over the scale and shape of any such measures. In that context, a run of speeches this week from Fed officials, culminating with chairman Ben Bernanke on Friday will be closely monitored by the markets.

Though the prospect of more dollars in the financial system has been a boon to stocks lately, the dollar has suffered _ last week, 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.

By late afternoon London time, the euro was 0.5 percent lower on the day at $1.3931 while the dollar was 0.4 percent higher at 82.07 yen.

The weekend meetings of the International Monetary Fund and Group of 20 finance ministers in Washington failed to yield anything new on the currencies front despite ongoing worries that many countries are using their currencies as a weapon in an attempt to garner growth by making their exports more competitive in the international marketplace.

The biggest battle appears to be between the U.S. and China, which keeps its currency artificially low against the dollar in order to boost exports.

Simon Derrick, senior currency strategist at Bank of New York Mellon, said the dollar is likely to retain its weak tone over coming days given the decreasing likelihood of a "meaningful detente" being reached between the two sides.

"As a result, heightened dollar weakness, increased capital flows into emerging markets, increased intervention _ possibly from Japan as well _ and diversification will be the order of the day," said Derrick.

Earlier in Asia, Chinese stocks extended their post-holiday gains in robust trading, amid expectations that global inflation will boost resource prices. The benchmark Shanghai Composite Index gained 68.20 points, or 2.5 percent, to 2,806.94. The Shenzhen Composite Index for China's smaller, second exchange rose 0.9 percent to 1,212.14.

Hong Kong's Hang Seng index closed 1.2 percent higher at 23,207.31, while Australia's S&P/ASX 200 rose 0.3 percent to close at 4,697.50, the index's highest close since May 5.

Benchmark oil for November delivery was down 35 cents to $82.31 a barrel in electronic trading on the New York Mercantile Exchange.

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Associated Press Writer Pamela Sampson in Bangkok contributed to this report.