World stocks rise as Summers exits Fed contention

World stock markets rise after Lawrence Summers withdraws as candidate for Fed chair

Associated Press

BANGKOK (AP) -- World stock markets rose Monday after economist Lawrence Summers withdrew as a candidate to head the Federal Reserve, a development that many investors believe will prolong the U.S. central bank's monetary stimulus. The dollar fell.

Analysts said Summers was perceived as unenthusiastic about the Fed's aggressive bond-buying program, dubbed quantitative easing, which helped push down interest rates to spur lending and jumpstart economic growth following the financial and economic crisis five years ago. The program has also weakened the dollar and boosted stock markets. Investors in equities want to see it continue for as long as possible.

The news that Summers, considered the leading contender to succeed current Fed chairman Ben Bernanke, was no longer seeking President Barack Obama's endorsement gave an immediate boost to stock markets.

His withdrawal means Fed vice chair Janet Yellen, a supporter of quantitative easing, "is firmly in pole position for running toward the top job," said Stan Shamu, market analyst at IG in Melbourne, Australia. "That's really what lit up the board this morning," he said.

The Fed's stimulus, which involves buying $85 billion a month in Treasurys and mortgage bonds, is certain to be scaled back once the economy recovers sufficiently. But many investors think the winding down will be slower without Summers as Fed chief.

Britain's FTSE 100 rose 1 percent to 6,648.15. Germany's DAX advanced 1.3 percent to 8,620.32 and France's CAC-40 gained 1.1 percent to 4,161.07.

Futures augured gains on Wall Street. Dow Jones industrial futures rose 1.1 percent to 15,475 and and S&P 500 futures gained 1.2 percent to 1,701.50.

In Asia, Hong Kong's Hang Seng rose 1.5 percent to 23,252.41. South Korea's Kospi advanced 1 percent to 2,013.37. Australia's S&P/ASX 200 gained 0.5 percent to 5,248. Benchmarks in Indonesia and the Philippines rose 2.6 percent and 2.8 percent respectively. Those in India and Shanghai fell. Markets in Japan were closed for a public holiday.

Summers' withdrawal followed a growing chorus of criticism about his suitability for the Fed job, including from some members of the Senate committee that would need to back his nomination. As former director of the National Economic Council, Summers helped steer the U.S. through the financial crisis early in Obama's term. But he was also the target of critics who felt he was too cozy with Wall Street.

Among individual stocks, Australian miner Lynas Corp. surged 6.2 percent. Despite reporting Monday that its loss grew for the year, Lynas said it was in line to compete globally in rare earths minerals, a market dominated by China. Newcrest Mining rose 5.1 percent.

U.S. stocks rose broadly Friday, giving the Dow Jones industrial average its best week since January. The market got a lift from two economic reports, one showing that inflation remained tame in August and the other showing that Americans spent more at stores last month.

Benchmark oil for October delivery was down 60 cents to $107.61 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 39 cents to close at $108.21 a barrel on the Nymex on Friday.

In currencies, the euro rose to $1.3347 from $1.3294 late Friday. The dollar fell to 98.84 yen from 99.35 yen.

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