World markets head higher ahead of Fed statement

World markets head higher ahead of Fed statement; positive earnings lift European sentiment

• By Pan Pylas, AP Business Writer
• On 11:54 am EST, Wednesday November 4, 2009

LONDON (AP) -- World stock markets rose sharply Wednesday after a batch of upbeat earnings reports and expectations that the U.S. Federal Reserve would indicate it will keep its easy monetary policy for quite a while yet.

In Europe, the FTSE 100 index of leading British shares closed up 70.68 points, or 1.4 percent, at 5,107.89 while Germany's DAX rose 90.88 points, or 1.7 percent, to 5,444.23. The CAC-40 in France was 86.08 points, or 2.4 percent, higher at 3,670.33.

And on Wall Street, the Dow Jones industrial average was up 122.28 points, or 1.3 percent, at 9,894.19 around midday New York time while the broader Standard & Poor's 500 index rose 11.82 points, or 1.1 percent, to 1,057.23.

Sentiment, particularly in Europe, was buoyed by some forecast-busting earnings from the likes of British retailer Marks & Spencer PLC, French bank Societe Generale SA and German sportswear company Adidas AG.

Though the earnings helped provide some support in Europe's markets, trading has been volatile of late and could well remain so in the coming days through to Friday's closely watched U.S. nonfarm payrolls figures for October -- the data often set the tone in equity markets for a week or two.

Over the last week or two, the rally in stocks has faltered amid concerns about the pace of the global economic recovery.

"Admittedly, valuations now look stretched after the gains that have been racked up this year but the favorable monetary policy backdrop and the improvement in the economic data that have fueled the rally should persist over the next few quarters," said John Higgins, an analyst at Capital Economics.

The Fed takes center stage later when it unveils its latest interest rate decision. Though no shift in interest rates is expected, investors will be on the lookout for any changes to the accompanying statement -- specifically to see if the Fed is turning more optimistic about the economic outlook.

In particular, they will be looking to see if the Fed is more upbeat about the economic outlook and whether it provides pointers as to how it will withdraw the monetary stimulus in the future.

As well as slashing its benchmark interest rate to near zero percent, the Fed has pumped in trillions of dollars into the financial markets in an attempt to shore up confidence and get the world's largest economy moving forward again from the depths of recession. Much of that money has found its way into the markets, and has helped fuel the rally in global stocks since March.

Neil Mellor, an analyst at Bank of New York Mellon, doubts there will be much change in the language of the statement, especially as Fed chairman Ben Bernanke has consistently voiced concerns about deflation.

"It must be presumed that Bernanke's strategy is one that favors taking risks with inflation rather than taking risks of falling into a trap (of deflation) that he has written a treatise on how to avoid," said Mellor, referring to Bernanke's past research as an academic. "As such, that should entail a glacial pace of policy change."

Earlier in Asia, Japan's Nikkei 225 stock average added 0.4 percent to 9,844.31 after the local financial markets were closed Tuesday for a national holiday. Hong Kong's Hang Seng climbed 1.8 percent to 21,614.77 and South Korea's Kospi added 1.9 percent to 1,579.93.

Oil prices pushed back above $80 a barrel alongside the stock market gains. Benchmark crude for December delivery was up 91 cents to $80.51 a barrel.

The dollar rose 0.7 percent to 90.90 yen while the euro was 0.8 percent higher at $1.4839.

Gold prices surged to a new high of $1,096 an ounce as investors remained buoyed by Tuesday's announcement that India's central bank had bought $6.7 billion worth of gold from the International Monetary Fund.

India's move has been interpreted as very positive for gold prices as it has stoked speculation that other developing countries may ramp up their purchases of gold as they diversify away from the dollar.

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

Buzz up!