World stocks gain as Fed signals easier policy

[October 13, 2010]  LONDON (AP) -- World stocks rallied Wednesday after the Federal Reserve cemented expectations it will further boost the faltering U.S. economy at its next rate-setting meeting in November and after forecast-busting earnings from Intel Corp.

In Europe, the FTSE 100 index of leading British shares was up 63.10 points, or 1.1 percent, at 5,724.69 while Germany's DAX rose 92.91 points, or 1.5 percent, to 6,397.48. The CAC-40 in France was 52.37 points, 1.4 percent, higher at 3,801.23.

Wall Street was poised for solid gains at the open -- Dow futures were up 66 points, or 0.6 percent, at 11,023 while the broader Standard & Poor's 500 futures rose 7.3 points, or 0.6 percent, to 1,171.80.

The main driver in the markets were the minutes to the last rate-setting meeting of the Federal Open Market Committee (FOMC) three weeks ago, published after European markets had closed Tuesday.

Analysts said it's no longer a question of if but how and how much money the Fed will pump into the U.S. economy.

The minutes showed that the Fed thinks U.S. growth will be lower than previously predicted and that deflation is becoming an increasing concern. The conclusion was that policymakers thought that more support may have to be provided, though no real details of what may emerge were proffered.

Not everyone on the FOMC thinks monetary policy needs to be eased further -- Thomas Hoenig is hostile to any more so-called quantitative easing, which would involve the purchase of financial assets from the banks.

As a result, the markets will be awaiting a speech Friday by Fed chairman Ben Bernanke to get a clearer idea of what the central bank has in mind. There's even talk that the Fed will try to ratchet up inflation expectations, possibly involving a clearer inflation target.

"If the FOMC is not to create havoc in financial markets, then Bernanke had better offer some more substantive 'guidance' when he speaks later this week, particularly as there are clearly a number of FOMC members that will back whatever he decides even if they individually have some doubts," said Marc Ostwald, market strategist at Monument Securities.

Stocks have also been supported Wednesday by better than expected earnings from Intel, the world's biggest maker of microprocessors. Intel said its net income for the third quarter leaped 59 percent while sales rose 18 percent -- an encouraging sign for the computer industry's all-important holiday season. Intel's fourth-quarter forecast suggests that demand is expected to stay solid.

Stocks have been buoyant for over a week as investors have priced in the growing likelihood that the Fed would join the Bank of Japan in easing monetary policy further in an attempt to further drive down rates on mortgages, corporate loans and other debt in the ultimate hope of boosting economic activity and supporting prices.

Though the prospect of more dollars in the financial system has been a boon to stocks, the dollar has suffered -- by late morning London time, the euro was 0.6 percent higher at $1.3993 while the dollar was flat at 81.80 yen, which is below the level that prompted the Bank of Japan to intervene in the markets last month to rein in the export-sapping appreciation of the yen.

Neil MacKinnon, global macro strategist at VTB Capital, said the worry in the markets is that the Fed's attempt to raise inflation may not be as manageable and as controllable as it thinks.

"The bond market is alert to the potential contradiction in Fed policy of buying U.S. Treasuries to keep bond yields down and ideas such as price-level targeting that are likely to raise bond yields," he said.

Earlier in Asia, stocks advanced following the publication of the Fed minutes and Intel's earnings.

Japan's benchmark Nikkei 225 stock index gained 14.87 points, or 0.2 percent, to close at 9,403.51 while South Korea's Kospi added 0.4 percent to 1,876.15. Australia's S&P/ASX 200 was up modestly by 0.04 percent to 4,619.9.

Hong Kong's Hang Seng index closed up 1.5 percent to 23,457.69 while the benchmark Shanghai Composite Index rose 19.95 points, or 0.7 percent, to 2,861.36.

Benchmark oil for November delivery was up $1.02 to $82.69 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

Associated Press writer Pamela Sampson in Bangkok contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.