Foreign markets rise on Wall Street rally

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Published: May 18,2010

Tags: global markets, investing, stocks and bonds

LONDON — World stock markets mostly rose today in the wake of a strong late rally on Wall Street and a modest rebound in the euro, but fears about Europe’s government debt crisis will continue to weigh heavily on investors as EU finance ministers gather in Brussels.

In Europe, the FTSE 100 index of leading British shares was up 30.73 points, or 0.6 percent, at 5,293.27 while Germany’s DAX rose 57.39 points, or 1 percent, to 6,124.31. France’s CAC-40 was 37.97 points, or 1.1 percent, higher at 3,581.52.

The gains in Europe came despite a disappointing German business survey and news that inflation in Britain is rising by more than anticipated.

Traders credited the advance to the late rally on Wall Street today, which saw shares end higher despite being sharply lower for most of the session.

Wall Street was poised for a solid opening later — Dow futures were up 24 points, or 0.2 percent, at 10,623 while the broader Standard & Poor’s 500 futures rose 3.7 points, or 0.3 percent, at 1,138.20.

But as has been the case over the last few weeks, Europe’s debt crisis is never too far from the minds of investors.

“Fears of debt problems in Europe simply refuse to die, hitting global confidence in stocks and the value of the euro as traders continue to push into the classic safe haven of gold,” said Ben Potter, research analyst at IG Markets.

Investors are keeping a close eye on developments in Brussels as the finance ministers from the 27 country EU gather.

EU Economy Commissioner Olli Rehn told reporters today that finance ministers would negotiate tougher budget rules because “it is now very important to reinforce confidence in the euro economy.”

Market worries about Europe’s economy have helped fuel the euro’s fall to its lowest level against the dollar since April 2006 and lifted the price of gold, traditionally a safe haven when markets lose faith in other assets.

Some stability has emerged with regard to the euro, which was up 0.1 percent on the day at $1.2409, having fallen yesterday to a four-year low of $1.2237.

Neil Mackinnon, global macro strategist at VTB Capital, said stock markets will continue to take their lead from the performance of the euro.

“Any fresh slide in the euro will trigger fresh setback in risk assets,” said Mackinnon.

Another currency in focus is the British pound, which has continued to fall even after the new coalition government paved the way for immediate spending cuts as a means of getting the country’s budget deficit down.

Figures earlier showing that consumer prices rose by an 18-month high of 3.7 percent in the year to April have done nothing to ease fears about the state of the British economy, even though it may mean that the Bank of England ends up having to raise borrowing costs sooner than most in the markets have been predicting.

By late-morning London time, the pound was 0.2 percent lower at $1.4457.

Earlier in Asia, the Shanghai Composite index jumped 1.4 percent to 2,594.78, bouncing back from losses earlier in the session. Hong Kong’s Hang Seng index gained 1.2 percent to 19,944.94 while Seoul’s Kospi slipped 0.5 percent to 1,643.24.

Japan’s Nikkei 225 stock average rose 0.1 percent to 10,242.64, recovering slightly after shedding more than 2 percent the previous day. Benchmarks in Singapore, India and Thailand also advanced.

Benchmark crude for June delivery was up $1.66 to $71.74 a barrel in electronic trading on the New York Mercantile Exchange. The June contract dropped $1.53, or 2.1 percent, to $70.08, a three-month low.

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