World stocks buoyed by easing Korean tensions

[December 21, 2010]  LONDON (AP) -- Global stock markets rose Tuesday amid signs of easing tensions on the Korean peninsula but the euro dropped after Portugal became the latest European country to be warned of a possible credit rating downgrade.

The FTSE 100 index of leading British shares was up 45.55 points, or 0.8 percent, at 5,937.16 while Germany's DAX rose 42.56 points, or 0.6 percent, to 7,061.16. The CAC-40 in France was 23.83 points, or 0.6 percent, higher at 3,908.92.

Wall Street was poised for modest gains at the open later -- Dow futures were up 36 points, or 0.3 percent, at 11,440 while the broader Standard & Poor's 500 futures rose 4.6 points, or 0.4 percent, to 1,245.80.

Scarce economic data and severe winter weather in Europe ahead of the Christmas break are keeping trading volumes low. But investors have been watching North Korea's apparent decision to avoid confrontation with South Korea despite accusing it of being "reckless" with its military drills.

That has helped shore up investors' appetite for risk -- when geopolitical worries are on the rise, investors look for safe havens to park their cash. The dollar, the Swiss franc, bonds and gold are widely perceived to be safer assets than, say, the euro or stocks.

"The easing of tension on the Korean peninsula has helped support risk assets," said Jane Foley, an analyst at Rabobank International.

The euro initially garnered support from the easing of tension on the Korean peninsula but early gains were mostly wiped out after Moody's Investor Services warned Portugal could have its A1 rating reduced. It cited uncertainties over its "longer-term economic vitality" and concerns over the country's ability to access capital markets "at a sustainable price."

By late morning London time, the euro was up 0.2 percent on the day at $1.3151. Just before the Moody's warning, it had been trading as high as $1.32.

Portugal is widely thought to be the most financially imperiled eurozone country now that Ireland and Greece have been bailed out by their partners in the single currency bloc and the International Monetary Fund.

Though concerns that Europe's debt crisis will claim another victim have diminished over the past few weeks, following the bailout of Ireland and news that the European Central Bank has been more active supporting bond markets, the ratings agencies continue to voice their worries. Portugal, Spain and Greece have been all been warned by Moody's that they could have their ratings cut, while Ireland's had its slashed by a massive five notches. Even Belgium was dragged into the spotlight when rival agency Standard & Poor's warned about its debt.

"Credit rating agencies are, as usual, way 'behind the curve' but are responding to jittery bond markets," said Jeremy Batstone-Carr, director of private client research at Charles Stanley. "Regional yield curves, already steep, have steepened yet further in recent days, while the banking sector appears vulnerable to falling bond prices and deteriorating credit conditions."

Earlier in Asia, Japan's Nikkei 225 stock average closed up 1.5 percent to 10,370.53 after the Bank of Japan kept monetary policy unchanged at the current super loose setting. Exporters climbed, with Sony Corp. up 2.7 percent and Canon Inc. adding 1.6 percent.

Hong Kong's Hang Seng index added 1.6 percent to 22,993.86. South Korea's Kospi advanced 0.8 percent to 2,037.09 and Australia's S&P/ASX 200 gained 0.8 percent at 4,771.90. China's Shanghai Composite Index jumped 1.8 percent to 2,904.11.

Benchmark oil for February delivery gained 13 cents to $89.50 a barrel in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

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