World stocks buoyed by central banks action

AP News
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Posted: Sep 16, 2011 7:53 AM
World stocks buoyed by central banks action

Global stocks remained buoyed by the decision of five top central banks to provide unlimited amounts of dollar loans to the banking sector, easing one of the concerns driving the recent turbulence in financial markets of late.

Coming on top of mounting hopes that Greece will not be defaulting on its debts anytime soon, the news helped ease concerns over the impact of Europe's debt crisis on banking stocks.

"While no help for the underlying sovereign risk situation, at the very least, the moves should reduce fears of a repeat of the 2008 credit freeze for the time being," said Douglas Porter, an analyst BMO Capital Markets.

In Europe, the CAC-40 was 0.7 percent lower at 3,066 _ its banks' ability to get dollars has been one of the main market concerns in recent days. Germany's DAX rose 1.1 percent 5,568, while the FTSE 100 index of leading British shares was 0.7 percent higher at 5,375.

Wall Street, though, was poised for a modest retreat after four straight days of gains _ Dow futures were down 0.3 percent at 11,342 while the broader Standard & Poor's 500 futures fell 0.4 percent to 1,200.

Though the central banks' move has doused down one of the worries afflicting markets over the past few weeks, investors remained cautious about Europe's ability to deal with Greece, in particular.

"If anyone thinks it has eased the problems in the eurozone they could well be disappointed given it deals with the symptoms but not the underlying problems," said Michael Hewson, market analyst at CMC Markets.

Greece's debts stand at about 150 percent of GDP and the markets are increasingly of the view that with the Greek economy shrinking, the banks will have to accept they're not going to be paid back all that they are owed. As a result, the main market debate is what sort of writedown _ the so-called haircut _ financial institutions who lent Greece the money will have to accept.

The focus is now shifting to talks in Poland between U.S. Treasury Secretary Timothy Geithner and his European counterparts, which run through Saturday, about coordinating efforts to prevent Europe's debt crisis from derailing a global recovery.

At a press conference, the group of eurozone officials said a decision on paying Greece its next bailout loans _ without which it will go bankrupt _ would be delayed until October.

Asian shares had earlier rallied hard as they followed the advances posted in Europe and the U.S. on Thursday.

Japan's Nikkei 225 stock average did particularly well, ending 2.3 percent higher at 8,864.16, while Hong Kong's Hang Seng rose 1.4 percent to 19,455.30. South Korea's Kospi was the best regional performer, closing 3.7 percent higher at 1,840.10.

China's main index in Shanghail underperformed its peers, closing only 0.1 percent higher at 2,482.34.

In the currency markets, the euro lost some ground after big gains the day before. It was trading 0.6 percent lower at $1.3790.

Oil prices traded in narrow ranges _ benchmark oil for October delivery was down 20 cents at $89.20 per barrel in electronic trading on the New York Mercantile Exchange.