While you were sleeping: Hopes on Chinese engine

Wednesday 18th January 2012

Stocks in Europe and on Wall Street advanced amid expectations that Chinese policy makers will aim to accelerate growth in the world's second-largest economy.

Also helping the mood were data indicating a leap in German investor confidence, better-than-expected growth in manufacturing in the New York area and a drop in borrowing costs at Spain's first debt auction since Standard & Poor's cut its credit rating last week.

In early afternoon trading in New York, the Dow Jones Industrial Average rose 1.00 percent, the Standard & Poor's 500 Index rose 0.85 percent and the Nasdaq Composite Index gained 1.15 percent. American markets were closed on Monday.

Europe's Stoxx 600 Index closed the session with a 0.5 percent gain.

Gross domestic product in China grew 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said in Beijing. Growth eased less than economists had expected, yet it was also the slowest pace in 2-1/2 years, and investors are betting the country will take measures to stimulate the economy.

"The threat of the euro zone appears ever so slowly to be easing, and China's data left investors feeling pretty warm for the prospect of" more favourable monetary policy, Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, told Reuters.

Commodities including copper, oil and gold also received a lift.

"More and more market players believe that China will implement further monetary easing measures,” Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, wrote in a report today, according to Bloomberg News. “This is giving considerable buoyancy to metal prices.”

In the US, today's data confirmed the recent trend of resilience in the economy.

The Federal Reserve Bank of New York’s general economic index advanced to 13.5, the highest level since April, from a revised 8.2 in December, surpassing the median forecast of 56 economists surveyed by Bloomberg News, which projected an increase to 11.

In terms of earnings, Wells Fargo's fourth-quarter results beat expectations while those of Citigroup fell short.

"All in all, there's a pretty decent backdrop to the investing climate, and something like Citigroup isn't enough to change the tone of the day," Miller Tabak & Co's Wilkinson said.

As Greek Prime Minister Lucas Papademos prepares to resume talks tomorrow with private debt holders to stave off the country's bankruptcy, there were indications of optimism about Europe's outlook.

The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations climbed to minus 21.6 from minus 53.8 in December, its second straight increase. The gain of 32.2 points is the biggest since ZEW started the index two decades ago. Economists forecast a reading of minus 49.4, according to the median of 39 estimates in a Bloomberg News survey.

Another positive sign was demand for Spain's debt auction, the first since S&P slashed the nation's credit rating by two notches last week.

Spain sold 4.88 billion euros of bills, just shy of the maximum 5 billion euros targeted. It paid an average 2.049 percent to sell 12-month debt today compared with 4.05 percent on December 13, and sold 18-month paper at 2.399 percent, down from 4.226 percent last month.

"These are cracking auctions for the Spanish Treasury,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, told Bloomberg

Also selling bonds was the European Financial Stability Facility, with investors bidding for 3.1 times the amount available a day after S&P lowered its credit rating to AA+.

The euro gained, last up 0.4 percent to US$1.2722.

(BusinessDesk)

BusinessDesk.co.nz

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