World markets up as Dubai contagion fears ease

[December 01, 2009]  LONDON (AP) -- World stock markets rose sharply Tuesday as fears about Dubai's debt problems eased after the emirate's government investment company said it was in talks to restructure a large chunk of its business.

In Europe, the FTSE 100 index of leading British shares was up 84.89 points, or 1.6 percent, at 5,275.57 while Germany's DAX rose 108.50 points, or 1.9 percent, at 5,734.45. The CAC-40 in France was 75.10 points, or 2 percent, higher at 3,755.25.

Earlier in Asia, most major benchmarks rose by 1 percent -- Japan's Nikkei index was the standout, closing up 226.65 points, or 2.4 percent, at 9,572.20.

U.S. stocks are expected to power ahead at the open later -- Dow futures were up 77 points, or 0.8 percent, at 10,411 while the broader Standard & Poor's 500 futures rose 8.7 points, or 0.8 percent, at 1,103.50. The Dow and the S&P 500 closed out November fairly solidly on Tuesday, ending up more than 5 percent on the month, the biggest monthly advance since July.

The underlying reason behind Tuesday's rally centered on Dubai as investors concluded that there will be limited contagion from the emirate.

"As investors continue to assess the potential fallout of the Dubai World debt default -- and seem increasingly convinced that the impact won't be as drastic as had perhaps been thought at the end of last week -- the major global equity markets continue to find support," said Ben Potter, research analyst at IG Markets.

Last week's announcement from Dubai World, a government investment company with some $60 billion worth of debts, that it wanted to postpone forthcoming debt payments until May sent shockwaves around financial markets.

Those shockwaves were still evident in the emirates' stock markets, where shares slid again.

But with the Dubai contagion fears dissipating, investors were once again focusing on the fundamentals ahead of a raft of economic news that could have a crucial bearing on how stock markets close out the year.

Friday's U.S. nonfarm payrolls report for November will be key -- the data often sets the tone in markets for a week or two. However, there are other important U.S. releases due, including the Institute for Supply Management's surveys into the services and manufacturing sectors. The latter is released at 1500 GMT.

If investors conclude that the U.S. economy is losing some steam, then that could well pave the way for an end of year bout of profit-taking following an eight-month bull run.

In Japan, stocks were buoyed by news that the Bank of Japan was holding an unscheduled meeting, partly in response to the sharp rise in the yen. The bank has been under pressure to do more to counter potential deflationary pressures in the economy, partly stemming from the sharp rise in the value of the yen.

After the markets closed, the Bank of Japan kept its benchmark rate unchanged at 0.1 percent and announced it would provide short term loans to banks totaling 10 trillion yen, or $115 billion.

Though nothing emerged to directly counter the rise in the yen, which prices out Japanese exports and makes imported goods much cheaper, the markets remain on the lookout for any intervention by the Bank of Japan to buy dollars or sell yen.

"Further strength in the yen only offsets the BoJ's new measures and at some stage the Japanese authorities will have to intervene to 'draw a line in the sand'," said Neil Mackinnon, global strategist at VTB Capital.

Elsewhere in Asia, Hong Kong's Hang Seng gained 291.65 points, or 1.3 percent, to 22,113.15 and South Korea's Kospi rose 14.12, or 0.9 percent, to 1,569.72 after the government said exports rose from a year earlier in November for the first time in 13 months.

Elsewhere, Australia's benchmark added 0.4 percent, Singapore's market was up 1.1 percent and China's Shanghai index rose 1.3 percent.

Oil prices rose to near $78 a barrel as Iran's detention of five British sailors kept the market on edge. Benchmark crude for January delivery was up 44 cents at $77.72 in electronic trading on the New York Mercantile Exchange. The contract climbed $1.23 to settle at $77.28 on Monday.

The dollar rose 0.6 percent to 86.79 yen while the euro was up 0.5 percent at $1.5074.

[Associated Press; By PAN PYLAS]

AP Business Writer Kelly Olsen in Seoul, South Korea, contributed to this report.

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