Stocks climb on Europe debt action hopes

AP News
Posted: Oct 06, 2011 8:14 AM
Stocks climb on Europe debt action hopes

Hopes that Europe is preparing a big plan to shore up its banks gave global stocks another lift Thursday as investors digested keenly awaited policy decisions from the European Central Bank and the Bank of England.

News that the International Monetary Fund is pushing for radical changes in the way the region's debt crisis should be handled and that Germany would be willing to put more money into its banks have helped improve the market tone. At the start of the week, investor sentiment sank amid signs of further procrastination and confusion among European leaders as they tried to get a handle on the continent's debt crisis.

Both central banks were under pressure to loosen their policies amid mounting signs that the European economy is stalling under the pressure of a debt crisis that has hit consumer sentiment hard at a time governments are cutting down on spending.

The European Central Bank failed to satisfy demands in the markets and kept its main interest rate on hold at 1.5 percent, but the Bank of England surprised investors by announcing it will spend another 75 billion pounds ($116 billion). It is an attempt to stimulate a British economy that's suffering from the shockwaves of Europe's debt crisis and steep government spending cuts.

The Bank of England said it was reviving a program of asset purchases which had injected 200 billion pounds between March 2009 and January 2010 to help lift Britain out of a deep recession. The hope is that by buying government bonds from banks, they will in turn use the cash to lend to hard-pressed businesses and households.

Following the decisions, Germany's DAX was up 1.3 percent at 5,545 while the CAC-40 in France rose 2.5 percent to 3,046. The FTSE 100 index of leading British shares was 2.1 percent higher at 5,211.

In the currency markets, the euro was down 0.4 percent at $1.3297 as investors were disappointed by the ECB's failure to act, though investors will be closely monitoring the upcoming press conference of ECB chief Jean-Claude Trichet to see if he announces more liquidity support for Europe's troubled banks.

"A concession today that the risks to future inflation have shifted to the downside would suggest that a reduction could come as soon as next month," said Jennifer McKeown, senior European economist at Capital Economics.

Meanwhile, the pound slid 1.1 percent in the aftermath of the Bank of England's decision to launch more so-called quantitative easing, or QE.

"The BoE is the first central bank to jump back into full blown QE in the this latest phase of stress so no surprise to see the pound get tarred," said Alan Ruskin, an analyst at Deutsche Bank.

Wall Street was also poised to open higher later _ Dow futures were up 0.4 percent at 10.879 while the broader Standard & Poor's 500 futures rose 0.2 percent to 1,137.

Investors will also be keeping an eye on the next batch of U.S. economic data in the run-up to Friday's monthly government payrolls figures, which often set the market tone for a week or two after their release. A raft of better than expected run of U.S. economic news has helped ease concerns over the world's largest economy.

The rally was evident earlier in Asia, with Japan's Nikkei index closing up 1.7 percent at 8,522.63 and South Korea's Kospi index jumping 2.6 percent to 1,710.32. Hong Kong's Hang Seng index surged 5.7 percent to 17,172.28.

Markets in mainland China were closed for a holiday.

Oil prices tracked equities higher too _ benchmark crude for November delivery was up $1.21 to $80.89 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $4.01 to finish at $79.68 on Wednesday alongside recovering share prices.


Kelvin Chan in Hong Kong contributed to this report.