Stocks steady in wake of China rate hike

AP News
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Posted: Oct 20, 2010 10:52 AM
Stocks steady in wake of China rate hike

Stock markets steadied Wednesday as the surprise of China's first interest rate increase in three years slowly wore off. The dollar gave back the ground it clawed back in the wake of the rate hike, which had stoked investor worries about the global economic recovery.

Despite losses across most of Asia, Britain's FTSE 100 index was up around 3 points at 5,706.72 while Germany's DAX rose 0.1 percent to 6,495.88. The CAC-40 in France was up 0.3 percent at 3,818.26.

The advance in the U.S. was greater mainly because the losses on Tuesday were bigger _ the Dow Jones industrial average was up 53.36 points, or 0.5 percent, at 11,031.98 soon after the open while the broader Standard & Poor's 500 index rose 3.67 points, or 0.3 percent, at 1,169.57.

Meanwhile in the currency markets, the euro was up 1.2 percent at $1.3897 while the dollar was down 0.5 percent at 81.23 yen _ in effect the dollar has given up all the gains it garnered following the China rate rise.

"As the initial impact of the Chinese policy move starts to wane, financial markets are reverting to their prior trends," said Nick Bennenbroek, an analyst at Wells Fargo Bank.

Nevertheless, China remains a key focus in the markets and investors will be keenly awaiting Chinese economic growth data on Thursday.

Ahead of that, investors will be monitoring anything that may have an impact on what the Federal Reserve will announce at the conclusion of its next policy meeting on November 3. It is widely expected to announce another program to buy more Treasury bonds and pump newly created money into the financial system _ so-called quantitative easing. The goal of driving down interest rates on mortgages, corporate loans and other debts and spur Americans to spend.

Traders will get more insight into the U.S. economy later when the Fed issues its beige book report, which breaks down the health of the economy by region.

"The whiff of further quantitative easing is heavy in the air and dealers remain cautious ahead of the beige book," said Andrew Wilkinson, senior market strategist at Interactive Brokers.

Before its publication, a raft of U.S. earnings Wednesday also helped to shore up sentiment in the markets.

Delta Airlines was a big gainer after it 19 percent jump in passenger revenue. That helped push shares of competitors like Jet Blue and Southwest Airlines up by nearly 2 percent as well.

Boeing Co. rose 2.2 percent after the aircraft manufacturer raised its profit forecast for the year and said that it expects to sell more commercial airplanes. Boeing was the top performer among the 30 companies in the Dow.

Financials were the only sector of the Standard and Poor's 500 that did not show gains. Before the market opened, Morgan Stanley reported a loss of 7 cents per share on special charges.

British markets were also digesting the detail's of the government's five-year austerity program and the minutes to the last rate-setting meeting of the Bank of England showed there was a three-way split on the nine-member Monetary Policy Committee.

Adam Posen voted for an extra 50 billion pounds of quantitative easing, while Andrew Sentance was again alone in voting for a quarter percentage point increase in the key interest rate to 0.75 percent. The other seven opted to keep policy unchanged.

In Asia, Japan's benchmark Nikkei 225 stock index closed down 1.7 percent to 9,381.60. Australia's S&P/ASX 200 fell 0.7 percent to 4,629.9 and Singapore's benchmark sank 0.4 percent to 3,178.20.

In China _ whose markets operate largely in isolation from most overseas investors _ shares gained ground as investors took the rate hike as a sign of the government's confidence in economic stability. The Shanghai Composite Index added 2.1 points to 3,003.95.

Hong Kong's Hang Seng index slid 0.9 percent to 23,556.50.

Analysts said traders were using the interest rate hike as an excuse for profit-taking.

Benchmark oil for December delivery was up 53 cents to $80.02 a barrel in electronic trading on the New York Mercantile Exchange.

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Associated Press writers Pamela Sampson in Bangkok, Shino Yuasa in Tokyo and researcher Ji Chen in Shanghai contributed.