Published: October 06, 2009 11:11 am      

11:15 a.m. Tuesday- Recovery hopes boost world markets

PAN PYLAS,AP Business Writer





LONDON (AP) — World stock markets rallied strongly Tuesday as better than expected U.S. data and a surprise interest rate hike from Australia's central bank reassured investors that the global economic recovery was continuing.



Meanwhile, the dollar fell after a newspaper report that Arab states and other countries were contemplating an end to the U.S. currency's role in pricing oil.



In Europe, shares tracked Asian issues higher, with the FTSE 100 index of leading British shares closing up 113.65 points, or 2.3 percent, at 5,137.98. Germany's DAX ended 148.79 points, or 2.7 percent, firmer at 5,657.64 while the CAC-40 in France rose 95.20 points, or 2.6 points, or 3,770.21.



By around midday New York time, the Dow Jones industrial average was 157.42 points, or 1.6 percent, higher at 9,757.17 soon while the broader Standard & Poor's 500 index spiked 18.23 points, or 1.8 percent, at 1,058.69.



Stocks around the world have enjoyed a solid start to the week after the closely watched Institute of Supply Management survey Monday showed that the U.S. service sector, a mainstay of the world's biggest economy, grew in September for the first time in over a year.



In Australia, hopes of a recovery are so established that the central bank felt able to raise its benchmark interest rate by a quarter percentage point to 3.25 percent — the first hike by a major central bank in the current economic cycle.



The central bank's governor Glenn Stevens said it was "prudent" to begin gradually reducing the stimulus provided by low interest rates. He said the risk of "serious economic contraction" in Australia had passed.



Australian shares remained higher after the rate decision, closing up 0.4 percent, while the Australian dollar surged to a 14-month high of $0.8916.



"This should have a stabilizing effect on risk appetite, providing another tangible sign that the global economy may be on the road to recovery," said Gareth Berry, an analyst at UBS.



Though other central banks are not expected to follow suit immediately, analysts said the Australian hike may be a sign that policymakers think the recovery from the deepest recession since World War II is already well-entrenched.



On Thursday, the European Central Bank and the Bank of England announce their latest interest rate decisions.



Though both are expected to keep their benchmark rates at their respective record lows of 1 percent and 0.5 percent, investors will be interested to see any signs that they are becoming less gloomy about the economic prospects.



Investors will also be looking to see if the third-quarter earnings season, which kicks off in earnest Wednesday with results from aluminum company Alcoa Inc., provide further evidence that the world economy is poised for a year-end rebound.



"With the Q3 earnings season officially starting tomorrow in the U.S., a broad reversion certainly can't be discounted," said Anthony Grech, market strategist at IG Index.



The second quarter earnings season was generally better than expected and helped fuel a big rise in share prices in July and August. However, the forecast-busting earnings were largely due to cost cutting measures which are unlikely to be repeated.



Earlier in Asia, Japan's Nikkei 225 stock average rose 17.31, or 0.2 percent, to 9,691.80 and Hong Kong's Hang Seng gained 382.46, or 1.9 percent, to 20,811.53. South Korea's Kospi was down 0.5 percent at 1,598.44. The Nikkei's gains though were tempered by the continuing strength of the yen against the dollar, which is weighing on exports.



Elsewhere in Asia, Singapore's market jumped 1.3 percent and Indonesia's index was up 2 percent. China's markets are closed for a weeklong holiday and reopen Friday.



Benchmark crude for November delivery was up $1.41 at $71.82 in electronic trading on the New York Mercantile Exchange. The contract gained 46 cents to settle at $70.41 Monday.



Meanwhile, the dollar fell 0.9 percent to 88.71 yen while the euro rose 0.7 percent to $1.4754.



Analysts said the dollar's renewed weakness Tuesday was partly due to a report in Britain's Independent newspaper that Arab states, along with China, Russia, Japan and France, are in talks to stop using the dollar for oil trading and moving instead to a basket of currencies including the yen and Chinese yuan, the euro and gold.



"The story is in keeping with the market mood at the moment and is enough to keep the dollar trading on the defensive for now," said Neil Mackinnon, global macro strategist at VTB Capital in London.



____



AP Business Writer Stephen Wright in Bangkok contributed to this report.