World markets rally on Fed's US assessment

[April 30, 2009]  LONDON (AP) -- World stock markets rose sharply Thursday even though the World Health Organization warned that a swine flu pandemic was imminent, as investors warmed instead to the Federal Reserve's suggestion that the worst of the recession in the U.S. may be over.

By mid morning London time, the FTSE 100 index of leading British shares was up 63.15 points, or 1.5 percent, at 4,252.74 while Germany's DAX rose 89.66 points, or 1.9 percent, to 4,794.22. The CAC-40 in France was 47.76 points, or 1.5 percent, higher at 3,164.70.

Earlier, Asian stocks enjoyed a very strong session. Japanese investors returned from a holiday Wednesday ready to buy, and pushed the Nikkei 225 stock average up 334.49 points, or 3.9 percent, to 8828.26. Hong Kong's Hang Seng rose 564.04 points, or 3.8 percent, to 15,520.99.

The positive mood in Asia and Europe followed big gains in the U.S. Wednesday after the Fed's rate-setting Federal Open Market Committee said the recession and financial market conditions had eased slightly since its last meeting in mid-March, though it stressed that economic activity would likely remain weak. It also pledged anew to keep its key bank lending rate at a record low "for an extended period" -- it stands in a range of zero percent to 0.25 percent.

"Markets gave the Fed a positive endorsement, as the upward momentum in the equity markets in anticipation of the FOMC decision did not get fazed after the Fed's press release," said Brian Bethune, chief U.S. economist at IHS Global Insight.

There also were some hints of economic renewal in Japan. Industrial production rose for the first time in six months in March, and Honda Motor, the country's No. 2 automaker, said it would manage to turn a profit for the fiscal year.

The brightening outlook has led to predictions of a pickup in spending by both consumers and businesses around the world, though any recovery will likely be long haul. Economists caution that consumers are still hurting after seeing their net worth plunge over the last year and that banks aren't done reckoning their bad assets.

The gains Thursday came despite the World Health Organization's decision to raise the alert over swine flu to level five -- one short of it declaring a global pandemic. Fears about the spread of the deadly virus from Mexico had been a big driver in the markets earlier in the week.

"The market is a fickle thing, its focus was firmly on the impact of the Mexican swine flu at the start of the week, pushing risk aversion higher, but now its glare has fallen back on the economic rather than global health outlook," said Stuart Bennett, an analyst at Calyon Credit Agricole.

However, Bennett said the markets' "more relaxed approach" may prove premature as the virus spreads around the world.

A number of countries have confirmed cases of the disease, which is blamed for roughly 170 deaths and 2,955 infections in Mexico.

Elsewhere in Asia, South Korea's Kospi added 2.3 percent to 1,369.36. Taiwan's market led the region, with its benchmark soaring 6.7 percent, after the government said it will allow institutional investors from China to buy into the island's stock market for the first time since the two sides split in civil war decades ago.

Taiwan's decision late Wednesday is the first step in a wide-ranging financial cooperation program it is launching with the mainland, an often hostile rival dating from a 60-year-old civil war.

China's benchmark edged up 0.4 percent, while Australia's index rose 2.3 percent and Singapore's stock measure added 3.3 percent.

The buying is expected to continue at the U.S. open. Dow futures were up 130 points, or 1.6 percent, to 8,255 while the broader Standard & Poor's 500 futures rose 14.60 points, or 1.7 percent, to 883.70.

Oil prices were higher, with benchmark crude for June delivery gaining 78 cents to $51.75 a barrel. The contract Wednesday gained $1.05 to settle at $50.97.

The dollar slipped to 97.78 yen from 97.49 yen. The euro strengthened to $1.3295 from $1.3268.

[Associated Press; By PAN PYLAS]

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

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