Hopes of Syria breakthrough gives markets a lift

Oil prices down further and stocks rally on hopes of diplomatic breakthrough over Syria crisis

Associated Press
Markets muted as focus returns to Fed
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People walk by an electronic stock board of a securities firm in Tokyo as Japan's bench mark Nikkei 225 index shows 258.36 points gain to 14,119.17 Monday morning, Sept. 9, 2013. Asian stocks opened higher on Monday, lifted by Tokyo's Olympic bid victory, Chinese export growth and an Australian conservative coalition's election victory. (AP Photo/Koji Sasahara)

LONDON (AP) -- Rising hopes that a U.S.-led military strike on Syria may be avoided gave stocks a big lift Tuesday, as well as pushing oil prices lower for the second day running.

Investors were cheered to hear that Syria has accepted Russia's call for Damascus to put its chemical weapons under international control for dismantling. France is also proposing a U.N. resolution that would enforce the plan militarily if the government failed to follow through. Tuesday's developments come a day after President Barack Obama said the Russian proposal could be "potentially a significant breakthrough" despite his reservations.

Over the past couple of weeks, the steady drumbeat to war had spooked investors and weighed on a number of financial assets, such as stocks, but underpinned oil prices. Geopolitical worries, particularly in the oil-rich Middle East, are rarely conducive to risk-taking in the investing community.

"The reduced threat of military action appears to be reducing uncertainty and arguably may also lessen the risk that oil could push higher in the coming months," said Jane Foley, an analyst at Rabobank International. "This all seems to be translating into a better outlook for global growth which is also supportive of risk appetite."

In Europe, the FTSE 100 index of leading British shares ended the day up 0.8 percent at 6,583 while Germany's DAX rose 2.1 percent to 8,446. The CAC-40 in France was 1.9 percent higher at 4,116.

In the U.S., the Dow Jones industrial average was up 0.7 percent at 15,163 while the broader S&P 500 index rose 0.54% to 1,680.

Developments surrounding Syria will likely remain the main point of interest across financial markets through the day especially as the scheduled economic news out of Europe and the U.S. remains light.

As well as boosting stocks, the easing of tensions over Syria has helped push the price of benchmark New York crude down $2.53 to $106.98 a barrel. Lower oil prices have the ability to shore up the global economic recovery.

Earlier, there was further evidence that China, the world's number 2 economy, was over its recent soft patch, which had seen its economic growth moderate. Industrial production was 10.4 percent higher in August than the year before, ahead of the consensus of analysts' forecasts of a 9.9 percent increase.

"Activity data have surprised persistently to the upside over the last month and this should at least arrest the process of persistent forecast downgrades for a while," said Adam Cole, an analyst at RBC Capital Markets.

The figures helped further buoy stock markets, particularly in Asia. Tokyo's Nikkei 225, the regional heavyweight, finished 1.5 percent up to 14,423.36. Hong Kong's Hang Seng index was 1 percent higher to 22,976.65. China's Shanghai Composite index gained 1.2 percent at 2,237.98. South Korea's Kospi closed 1 percent higher to 1,994.06 and Australia's S&P/ASX 200 advanced 0.4 percent to 5,201.20. The benchmark in the Philippines ended the day 1.6 percent up and Indonesia's soared 4 percent at 4,358.14.

India's benchmark Sensex index also had one of the day's highest gains, shooting up 3.8 percent to 19,997.10 as foreign investors went bargain-hunting to take advantage of the weakened rupee. Indian stocks were trading at their highest level since late July after the new Reserve Bank of India governor Raghuram Rajan outlined new confidence-boosting measures.

"There is a relief rally happening in the Indian markets," said Jagannadham Thunuguntla, head of research for SMC Global Securities Ltd. in New Delhi. "But having said that, it may take considerable amount of time to call it a permanent turnaround."

Despite the euphoria evident in markets around the world Tuesday, risks remain. As well as monitoring developments over Syria, investors have a crucial meeting of the U.S. Federal Reserve looming. The central bank is widely expected to announce plans to start phasing out its support program for the U.S. economy following its meeting next week.

The dollar's near-term fortunes will likely rest on the outcome of the meeting. On Tuesday, the euro was steady at $1.3253 while the dollar rose 0.5 percent to 100.24 yen.

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Teresa Cerojano in Manila, Philippines and Kay Johnson in Mumbai, India, contributed to this report.

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