Stock futures surge on good news from overseas

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Published: September 1,2010

Tags: investing, investments, markets, stocks and bonds

NEW YORK — Stock futures surged today after upbeat signs of growth in China and Australia alleviated worries about a global economic slowdown.

Overseas markets rose sharply after reports showed the pace of growth in China’s manufacturing sector rose in August for the first time in four months and Australia economy grew by the fastest pace in three years during the second quarter.

The sharp jump in U.S. stock futures is surprising given the domestic economic reports due out later in the morning. Traders in the U.S. are waiting for the Institute for Supply Management’s monthly manufacturing report and payroll company ADP’s report on private employment.

Often investors don’t make big bets heading into key economic reports, particularly in recent weeks as data has consistently showed growth is slowing. Both the ISM manufacturing and payroll reports are expected to follow that trend.

Stocks have been volatile over the past month because traders are unsure about the direction of the economy. Data continues to point to meager growth, but exactly where the pace of growth settles remains a major question. By sending stocks lower throughout August though, traders were betting that weak growth will eventually be a drag on corporate earnings.

Ahead of the opening bell, Dow Jones industrial average futures rose 95, or 1 percent, to 10,101. Standard & Poor’s 500 index futures rose 11.80, or 1.1 percent, to 1,060.10, while Nasdaq 100 index futures rose 22.75, or 1.3 percent, to 1,789.25.

With stock markets rising worldwide, U.S. Treasury prices dropped and interest rates rose. The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.52 percent from 2.47 percent late yesterday. Its yield is often used as a gauge to set interest rates on mortgages and other consumer loans.

Economists polled by Thomson Reuters forecast the ISM manufacturing index slipped to 53.0 in August from 55.5 a month earlier. Any reading above 50 indicates expansion in the sector.

Regional surveys of manufacturing activity in recent weeks also pointed to slowing growth in the sector, which had been among the strongest during the first half of the year.

Economists expect the ADP report will show private employers added just 19,000 jobs last month after hiring 42,000 new workers in July. The slowdown in hiring during August is further evidence that the jobs market remains weak.

Employers are avoiding making any new hires in large numbers because of the uncertain direction of the economy. They are also worried about the potential impact of government health care and financial regulation reforms as well as possible increases in taxes.

With unemployment still high, people concerned about their jobs have cut back on spending, which has further slowed growth.

The ADP report is often considered a gauge for the government’s monthly employment report, which is due out Friday. The Labor Department’s data also includes government employment so it is a broader reading on the jobs market.

Economists expect the government report to show 100,000 jobs were cut last month, but that was largely due to laying off temporary census workers. Private employers likely added just 41,000 jobs last month.

Overall, the unemployment rate is expected to have climbed to 9.6 percent last month from 9.5 percent in July.

Australia’s S&P/ASX 200 index jumped 2.1 percent on the upbeat growth report. Hong Kong’s Hang Seng index rose 0.4 percent, while Japan’s Nikkei stock average rose 1.2 percent.

European markets followed Asian markets higher. Britain’s FTSE 100 rose 1.4 percent, Germany’s DAX index gained 1.1 percent, and France’s CAC-40 climbed 1.8 percent.

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