Chinese growth gives markets a boost

AP News
Posted: Jan 17, 2012 7:22 AM
Chinese growth gives markets a boost

Robust growth in China helped stock markets rally strongly Tuesday as investor fears of an abrupt slowdown in the world's second-largest economy were eased.

With Europe seemingly heading back into recession and the U.S. still to convince that it's economy is improving, China is important to shore up the global economy as well as sentiment, especially at a time when many investors are openly fretting about a potentially-devasting Greek debt default that could prompt further turmoil in financial markets.

Government figures showed that the slowdown in Chinese growth in the final quarter of 2011 was not as big as had been feared. Though the drop to 8.9 percent represented the lowest rate in two and a half years, the markets had been expecting a bigger decline to 8.7 percent.

"Equity markets are giving a positive reception to the latest set of Chinese economic data which shows that the economy is managing to avoid a hard landing despite background concerns of local government debt and banks' loan exposure to a previously overheated real estate sector," said Neil MacKinnon, global macro strategist at VTB Capital.

Following Asia's strong performance, Europe's markets have traded strongly. Germany's DAX was up 2 percent at 6,341 while the CAC-40 in France rose 1.9 percent to 3,288. The FTSE 100 index of leading British shares was 1.2 percent higher at 5,723.

Wall Street was poised for a solid return from the Martin Luther King Jr. day off Monday _ Dow futures were up 1 percent at 12,508 while the broader Standard & Poor's 500 futures rose a similar rate to 1,302.

The rebound in sentiment could also be seen in other markets as well, with the euro up 0.9 percent at $1.2790 and oil prices back above $100 a barrel. Both assets often get supported when investors have a predilection to take on riskier assets.

The euro has foundered in recent days and weeks on rising concerns of a recession in the 17-nation eurozone and renewed speculation that Greece will default on its debts.

Greece remains the epicenter of the European debt crisis and is struggling to agree a deal with its private creditors to get them to reduce the value of their holdings of Greek debt.

Last October, Greece's partners in the eurozone sanctioned a deal whereby Greece's creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country's debt burden.

The deal with private investors, known as the Private Sector Involvement, or PSI, aims to reduce Greece's debt by euro100 billion ($127.9 billion) by swapping private creditors' bonds for new ones with a lower value. It is a key part of a euro130 billion international bailout, the second one for Greece.

It is expected that talks on the PSI will resume on Wednesday after being abandoned last Friday.

On Tuesday, representatives of Greece's creditors _ the European Union, the European Central Bank and the International Monetary Fund _ will visit Greece for yet another round of inspections of its efforts at fiscal and structural reform and negotiations for the next tranche, the seventh, from the first bailout.

Without a deal with its private creditors, Greece has been told it won't get the next tranche of money due from its first bailout.

Without that money, Greece would be unable to pay a big bond redemption in March, potentially triggering mayhem in financial markets.

"It seems reasonable to start planning for the possibility of a Greek default in March and possible even an exit from the single currency," said Simon Derrick, senior analyst at The Bank of New York Mellon.

Earlier in Asia, sentiment had been supported by the Chinese growth figures.

In China, the benchmark Shanghai Composite Index jumped 4.2 percent, the most in over two years, closing at 2,298.38. The Shenzhen Composite Index of China's second, smaller exchange, surged 5.1 percent to 860.25.

Hong Kong's Hang Seng soared 3.2 percent at 19,627.75 while Japan's Nikkei 225 index rose 1.1 percent to close at 8,466.40.

___ Pamela Sampson in Bangkok contributed to this report.