World markets rally as gold hits new record high

[November 23, 2009]  LONDON (AP) -- World markets rose sharply Monday amid further hopeful signs about the economic recovery. Commodity stocks led the charge, particularly in London, after gold hit another record high amid renewed dollar weakness.

European stocks tracked their Asian counterparts higher, with the FTSE 100 index of leading British shares up 88.99 points, or 1.7 percent, at 5,340.40. Germany's DAX rose 91.74 points, or 1.6 percent, at 5,754.89 and the CAC-40 was 57.24 points, or 1.5 percent, higher at 3,786.60.

Wall Street was poised to open higher after a strong end to last week. Dow futures were up 91 points, or 0.9 percent, at 10,394 while the broader Standard & Poor's 500 futures rose 11.50 points, or 1.1 percent, to 1,101.60.

Sentiment in Europe was buoyed by data indicating that the economic recovery is gathering pace in the 16 countries that use the euro. The monthly composite purchasing managers index -- a broad gauge of business activity in the manufacturing and services sector -- rose to 53.7 in November from October' 53.

Any reading above 50 indicates expansion and the bigger the difference from 50 the greater the expansion -- figures recently confirmed that the recession in the eurozone economy ended in the third quarter, though growth was a muted 0.3 percent.

"November's rise suggests that the eurozone economy has gained a bit more momentum in Q4, but the recovery remains of the steady, rather than the spectacular, variety," said Ben May, European economist at Capital Economics.

Much of Monday's activity centered on commodity stocks as the price of gold rose 1.7 percent to a new record of $1,167.35 an ounce. Gold has garnered renewed support as the recent rally in the dollar ran out of steam after U.S. Federal Reserve official James Bullard said the central bank should continue to buy mortgage-backed securities after the March expiration date.

Any suggestion that the Fed will maintain its extraordinary monetary policy measures for longer than previously anticipated heaps pressure on the dollar -- by late morning London time, the euro was up 0.8 percent at $1.4971.

The falling dollar makes gold more attractive to international investors and as a result, commodity stocks were heavily in demand, particularly on London's FTSE 100, where a number of resource companies are listed -- near the top of the leaderboard were Eurasian Natural PLC, Xstrata PLC and Rio Tinto PLC.

Attention later will focus on U.S. existing home sales figures for October. Analysts are hopeful the figures will not disappoint after a mixed series of housing data recently, and are forecast to have risen around 2.5 percent to an annual rate of 5.7 million units.

"The focus will be on the U.S. existing home sales data, with the expectation that the rate will come in at the fastest rate since July 2007, confirming the strength of the recovery," said Richard Griffiths, senior equity trader at Spreadex.

However, with Thursday's Thanksgiving Day holiday approaching, there are doubts that stocks will be able to sustain their march ahead for too long -- many analysts think investors will start taking profits on the rally at some point.

"There's still that lingering degree of caution as to whether stocks can continue to push much higher in general and with a relatively quiet few days ahead, combined with traders in the U.S. winding down for the Thanksgiving holiday, this issue is set to be played out yet again," said Ben Potter, research analyst at IG Markets in Melbourne, Australia.

Stock markets have rallied strongly since March's lows as investors reined in their economic doomsday expectations to factor in a swifter than anticipated global economic rebound, but recent disappointing U.S. housing figures and mixed earnings from some of the country's leading technology companies and retailers have dented the optimism.

Many investors think stock valuations are now pricing in too rapid an economic recovery. There have been similar bouts of doubt since March, but most did not last long.

Earlier, Hong Kong's Hang Seng index gained 315.55, or 1.4 percent, to 22,771.39 while South Korea's Kospi fell 1.55, or 0.1 percent, to 1,619.05.

Elsewhere, Australia's index gained 0.7 percent and China's Shanghai benchmark rose 0.9 percent. Markets were lower in Indonesia, Malaysia, Thailand, New Zealand and the Philippines.

Japan was closed for a public holiday.

Meanwhile, oil prices rose as Iran started five days of air defense war games aimed at protecting its nuclear facilities from attack. Benchmark crude for January delivery was up 96 cents at $78.43 on the New York Mercantile Exchange. The contract lost 58 cents to settle at $77.47 on Friday.

[Associated Press; By PAN PYLAS]

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

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.