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World markets get early year manufacturing boost

LONDON — World stock markets shot higher Monday on the first trading day of 2010 after encouraging manufacturing data around the globe reinforced hopes that an economic recovery is gathering pace.

In Europe, the FTSE 100 index of leading British shares closed up 87.46 points, or 1.6 percent, at 5,500.34 while Germany’s DAX rose 90.87 points, or 1.5 percent, to 6,048.30. The CAC-40 in France was 63.36 points, or 1.6 percent, higher at 4,013.97.

On Wall Street, the Dow Jones industrial average was up 149.94 points, or 1.4 percent, at 10,577.99 around midday New York time while the broader Standard & Poor’s 500 index was 16.68 points, or 1.5 percent, higher at 1,131.78.

Stocks around the world have been buoyed by a raft of surveys pointing to a further pickup in manufacturing activity in December — indicative of a continuing rebound in global trade volumes.

"The flow of economic data right around the world has been positive today, starting with China which posted its fastest rate for manufacturing output last month in five years," said David Buik, markets analyst at BGC Partners.

China’s survey was followed by upbeat reports into the state of manufacturing in the 16-country eurozone and Britain, culminating in extremely strong U.S. data.

The Institute for Supply Management said its purchasing managers index — a key gauge of activity — for the U.S. manufacturing sector rose to 55.9 in December from 53.6 in November.

December’s increase was more than anticipated — the consensus in the markets was for a far more modest increase to 54.3 — and means that the U.S. manufacturing sector is growing at its fastest rate in around three and a half years.

A reading above 50 indicates expansion and the bigger the difference from the 50, the faster the growth.

Paul Ashworth, senior U.S. economist at Capital Economics, said the headline number is consistent with a 4 percent annualized increase in GDP, which would go a long way to recouping the output lost during the recession.

"The rebound in the index should restore some faith in the sustainability of the industrial recovery," said Ashworth.

Monday’s manufacturing data kicked off a big week in terms of economic releases around the world. Most attention will likely center on Friday’s U.S. nonfarm payrolls data for December and many in the markets expect the first job creation in two years — the jobs data often set the stock market tone for a week or two.

The likely key driver to stock market performance this year will be whether the economic figures back up the optimism that is evident in company valuations following a nine month bull run.

Stock markets around the world rallied strongly since March’s lows — the Dow and the S&P 500 for example surged more than 60 percent since then — as investors grew more optimistic about the global economic recovery after central banks and governments pushed through extraordinary policy measures to mitigate the deepest recession since World War II.

Kit Juckes, chief economist at ECU Group, said the positive economic mood will likely spillover into further stock market gains in the early part of the year.

However, he warned that mounting economic optimism may mean that the world’s leading central banks withdraw their loose monetary policies, which would include higher interest rates, sooner than anticipated — much of the nine-month bull run can be explained by central bank moves to boost the money supply.

"This is where the outlook (for stock markets) gets trickier," he said.

As a result, many investors will be keeping a close eye on a raft of speeches from U.S. Federal Reserve officials as well as Wednesday’s publication of the minutes to the Fed’s December rate-setting meeting.

Earlier, most Asian markets rose after the Chinese data — one of the reasons why the world economy has managed to recover from recession sooner than many people were expecting was because Chinese economic growth largely held up.

In Tokyo, the Nikkei 225 index advanced 108.35 points, or 1 percent, to 10,654.79 while South Korea’s Kospi added 0.8 percent to 1,696.14. Australia’s main index was up 0.1 percent.

However, Hong Kong’s Hang Seng slipped 0.2 percent t0 21,823.28 and Shanghai’s index ended down 1 percent to 3,243.76.

The upbeat manufacturing data also helped oil prices spike sharply as investors factored in the prospect of higher than anticipated demand for crude.

An energy price dispute between Belarus and Russia also supported prices. Benchmark crude for February delivery was up $2.05 at $81.41.

The dollar fell 0.51 percent to 92.89 yen while the euro rose 0.5 percent to $1.4389.

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