World stocks up as debt default fears ease

[May 13, 2010]  LONDON (AP) -- World stock markets advanced Thursday as worries of a wave of debt defaults in Europe continued to ease in the wake of last weekend's massive $1 trillion financial rescue package from the European Union.

In Europe, Britain's FTSE 100 index of leading shares was up 31.25 points, or 0.6 percent, at 5,414.70 while Germany's DAX rose 48.45 points, or 0.8 percent, to 6,231.94. The CAC-40 in France was 8.56 points, or 0.2 percent, higher at 3,742.43.

Wall Street was poised for a modest pullback at the open following solid gains Wednesday -- Dow futures were down 16 points, or 0.2 percent, at 10,860 while the broader Standard & Poor's 500 futures fell 2.8 points, or 0.2 percent, at 1,166.90.

After last week's dramatic volatility, stock markets were buoyed this week by the EU's $1 trillion bailout and a pledge by eurozone countries to strengthen their stability and growth rules. In Spain, Prime Minister Jose Luis Rodriguez Zapatero outlined where his new spending cuts would be made to get the country's deficit down faster.

However, the government debt crisis has not gone away overnight and investors will be keeping a close eye on developments over the coming weeks and months.

"Debt restructuring, debt default and debt monetisation are set to remain the main themes for financial markets in the longer term," said Neil Mackinnon, global macro strategist at VTB Capital.

Though confidence in stocks has been shored up somewhat by the package, the euro currency is now back more or less to where it was before the official announcement early Monday morning.

By early afternoon London time, the euro was down 0..4 percent at $1.2580. Before rumors of the deal swept the markets late last Friday, the euro was trading at a 14-month low around the $1.25 mark. Confirmation of the deal sent it flying back above $1.30 for a brief while on Monday.

"The initiative has reduced the likelihood of the worst case scenarios for Europe panning out, the threat of sovereign implosion or euro break-up substantially diminished, but the resultant market shift from euro attrition to euro apathy has simply changed the pace of decline," said Daragh Maher, deputy head of global foreign exchange strategy at Credit Agricole.

Earlier in Asia, Japan's benchmark Nikkei 225 stock average rose 2.2 percent to 10,620.55 with improving corporate earnings also boosting sentiment in Tokyo.

China's benchmark index in Shanghai jumped 2.1 percent as analysts predicted government measures to cool soaring property prices won't undermine the banking system. Citigroup said residential real estate values will likely drop up to 25 percent from recent peaks, but that shouldn't have much impact on bank mortgages or loans to developers.

"Chinese markets have been dogged by concerns over the duration and the extent of macroeconomic tightening policies, but the underlying fundamentals of the Chinese economy continue to be robust," said Gigi Chan, a fund manager with London-based Threadneedle, which manages about $100 billion of assets.

South Korea's Kospi gained 1.9 percent to 1,694.58 and Hong Kong's Hang Seng added 1 percent to 20,442.46. Australia's S&P/ASX 200 index was advanced 1.8 percent at 4,652.80 and benchmarks in Taiwan, India and Indonesia also climbed.

Benchmark crude for June delivery was down 72 cents at $74.93 in electronic trading on the New York Mercantile Exchange, extending the previous day's big drop after the International Energy Agency said global oil demand is expected to rise less than previously expected in 2010.

[Associated Press; By PAN PYLAS]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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