World stocks up after Spain pledges to cut budget

World stock markets rise after recession-hit Spain pledges to cut spending by $51 billion

Associated Press

BANGKOK (AP) -- World stock markets rose Friday after Spain announced severe budget cuts meant to show international lenders and investors that the country is taking steps toward getting its debt under control.

The Spanish government on Thursday unveiled a draft budget for 2013 that cuts overall spending by €40 billion ($51 billion). Wall Street spurted higher on the news. Many economists see the cost-cutting as a signal Spain is preparing to request financial aid from other governments and the European Central Bank.

Spain, whose banks have been hobbled by toxic assets, has so far been reluctant to ask for help because stiff conditions will likely be imposed in exchange for any aid.

European stocks rose in early trading. Britain's FTSE 100 gained 0.3 percent to 5,797.35. Germany's DAX added 0.5 percent to 7,322.85. France's CAC-40 advanced 0.2 percent to 3,446.37. Wall Street headed for a flat open, with Dow Jones industrial futures nearly unchanged at 13,412 and S&P 500 futures barely budging at 1,441.20.

In Asia, stocks were also helped by speculation that China's central bank will act soon to help the world's No. 2 economy.

Lorraine Tan, director at Standard & Poor's equity research in Singapore, said she believes the Chinese government is likely to introduce incentives to encourage domestic spending rather than making more money available for loans, as the U.S. Federal Reserve has done under its quantitative easing programs.

"Banks are indicating that they are not finding takers for loans," Tan said.

"The Chinese have a lot of flexibility ... the question is, they will only act on it if they think it will achieve something."

Hong Kong's Hang Seng Index rose 0.4 percent to 20,840.38. South Korea's Kospi added nearly 0.4 percent to 1,996.21 and Australia's S&P/ASX 200 advanced slightly to 4,387. Benchmarks in Singapore, Taiwan, Thailand and the Philippines also rose.

Mainland Chinese shares rose ahead of an extended holiday next week.

The Shanghai Composite Index gained 1.5 percent to 2,086.17 and the Shenzhen Composite Index rose 1.9 percent to 853.83. Property stocks rose, including industry leader China Vanke, up 2.7 percent.

But Japan's Nikkei 225 index lost 0.9 percent to 8,870.16, sinking on a government report that showed industrial production fell a further 1.3 percent in August. Weak global and domestic demand is weighing on manufacturers, particularly electronics makers, who are facing intense competition from South Korean, Taiwanese and other Asian manufacturers.

The strong yen, which erodes overseas earnings and makes Japanese-made products relatively more expensive, is also eating into profits.

Major Japanese exporters got slammed. Toyota Motor Corp. fell 2.4 percent and Honda Motor Co. shed 2.7 percent. Sharp Corp. lost 3 percent.

Rising gold prices helped related shares. Hong Kong-listed Zijin Mining Co., China's largest gold miner, gained 1.6 percent. Australia's Newcrest Mining Ltd. jumped 3.3 percent.

Benchmark oil for November delivery was up 41 cents to $92.26 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.87 to finish at $91.85 on the Nymex on Thursday.

In currencies, the euro rose to $1.2934 from $1.2917 late Thursday in New York. The dollar fell to 77.59 yen from 77.62 yen.

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AP researcher Fu Ting contributed from Shanghai.

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