World stocks gain as Fed word on stimulus awaited

[November 03, 2010]  BANGKOK (AP) -- World stocks were mostly higher Wednesday as markets digested news that Republicans gained control of the House in midterm U.S. elections and attention refocused on the Federal Reserve's plans to stimulate the world's biggest economy.

Oil prices rose above $84 a barrel amid expectations the Fed's upcoming announcement could further weaken the dollar and boost demand for crude. In currencies, the dollar fell against the yen and the euro.

European bourses rose in early trading. Britain's FTSE 100 was up less than 0.1 percent to 5,759.42. France's CAC-40 was up 0.3 percent to 3,875.82, and Germany's DAX rose 0.1 percent to 6,661.46.

Stock market futures in the United States were little changed as election results streamed in. Dow futures were down less than 0.1 percent to 11,145. Standard and Poor's 500 Index, the market index that most professional investors follow, was down 0.5 point, or less than 0.1 percent, at 1,192.20.

Among Asian shares closing higher was Hong Kong's Hang Seng index, which climbed 2 percent to 24,144.67.

South Korea's Kospi rose 1 percent to 1,935.97 and Australia's S&P/ASX 200 climbed 0.5 percent to 4,722.6.

Indexes in Singapore, Malaysia and the Philippines were also higher while Taiwan and Indonesia fell. Markets in Japan were closed for a public holiday.

Chinese shares fell amid renewed signs that authorities may take further action to curb inflation. The benchmark Shanghai Composite Index lost 14.45 points, or 0.5 percent, to 3,030.99. The Shenzhen Composite Index for China's smaller, second exchange fell 1.8 percent to 1,309.41.

"After the interest rate hikes in Australia and India on Tuesday, investors are fretting that China's central bank will likely raise interest rates again within this year," said Wen Lijun, an analyst at Nanjing Securities, in Nanjing.

In a quarterly report issued late Tuesday, China's central bank signaled it is likely to pull back further from stimulus policies meant to counter the fallout from the global financial crisis.

Investors took in stride U.S. midterm congressional elections, which put Republicans -- riding a wave of voter discontent over America's economic woes -- in control of the House. President Barack Obama's Democratic Party retained control of the Senate, where the Republican-leaning tea party won at least two seats.

The divided government was a sign that fights over taxes, deficits, health care and financial regulation were looming and could result in paralyzing uncertainty for the world's No. 1 economy. But investors seem to have already factored that outcome into stock prices.

The key issue is whether the two parties can work together, analysts at Bank of America Merrill Lynch said in a report.

"A popular Wall Street adage is that "gridlock is good" because it keeps the government from implementing new policies that further intervene in the private economy," the report said. "However, the short-term gridlock is very bad for the outlook, in our view."

With the election results clear, investors turned their attention to the outcome of the Fed's policy meeting Wednesday. The central bank is expected to announce the details of its plan to stimulate the economy by buying bonds. The plan, known as quantitative easing, makes stocks a more attractive investment by lowering bond yields.

Investors have been anticipating that the central bank's program will tally at least $500 billion. Any number significantly higher or lower than that figure could affect stock prices.

Broad stock market indexes have gained 12 percent since the Fed began hinting in late August that it would undertake the bond buying program by the end of the year. Over the last month, the Dow Jones industrial average is up 3.3 percent, and the broad Standard and Poor's 500 Index is up 4.1 percent. The Nasdaq composite index has gained 6.8 percent over the same time frame. It closed at its high for the year on Tuesday.

Benchmark crude for December delivery was up 30 cents at $84.20 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 95 cents to settle at $83.90 a barrel on Tuesday.

In currencies, the dollar fell to 80.61 yen from 80.64 yen in New York late Tuesday. The euro rose to $1.4040 from $1.4030.

[Associated Press; By PAMELA SAMPSON]

AP business writer David K. Randall in New York and AP researcher Ji Chen in Shanghai contributed to this report.

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