US recovery hopes lift stocks, dollar

[January 06, 2011]  LONDON (AP) -- Mounting hopes over the pace of the U.S. economic recovery following forecast-busting jobs data have helped stocks rally Thursday and the dollar hold onto recent gains.

In Europe, the FTSE 100 index of leading British shares was up 38.17 points, or 0.6 percent, at 6,082.03 while Germany's DAX rose 78.61 points, or 1.1 percent, to 7,018.43. The CAC-40 in France was 30.97 points, or 0.8 percent, at 3,935.58.

Wall Street was poised for further gains following a robust session Wednesday -- Dow futures were up 26 points, or 0.2 percent, at 11,690 while the broader Standard & Poor's 500 futures rose 3.5 points, or 0.3 percent, to 1,275.30.

The main talk in the markets is whether Friday's official U.S. nonfarm payrolls data will echo the findings of the ADP payrolls firm. ADP said Wednesday that a massive 297,000 private sector jobs were added during December, way up on November's 92,000 and significantly ahead of market expectations for a 100,000 increase.

Analysts have been quick to raise their predictions for Friday's government report, and the expectation now is that around 200,000 jobs, both private and public, were added over the month, up from 140,000 before the ADP data.

"A strong payrolls release of Friday would underpin talk that the U.S. recovery could be entering a new accelerated growth phase," said Jane Foley, senior currency strategist at Rabobank International.

More jobs creation in the U.S. is obviously good news for stocks because it signifies that the world's largest economy is growing faster than before. However, it could pose problems because it may also prompt the Federal Reserve to start withdrawing its monetary stimulus sooner than previously expected. As well as cutting its key interest rate to near zero percent, the Fed has authorized two massive money injections into the U.S. economy and is currently in the middle of a $600 billion effort.

Those tentative concerns that the Fed may soon alter course seemed to weigh on stocks in the immediate aftermath of the U.S. jobs data but the optimists soon took charge -- after all, higher growth means bigger profits and earnings.

The dollar had no such conflict as Treasury yields spiked sharply higher. That means that holding dollars is more attractive because the returns are potentially greater.

"The ADP report provided yet another clear signal that U.S. labor market conditions are improving, helping to further reassure investors over the sustainability of the U.S. economic recovery," said Lee Hardman, a currency economist at the Bank of Tokyo-Mitsubishi UFJ.

The dollar remained buoyant Thursday, trading only 0.1 percent lower on the day at 83.18 yen. However, it has gained further ground against the euro, which was down 0.3 percent at $1.3105.

The focus later will remain on the U.S. and specifically on the weekly jobless claims figures.

"The bulls will be looking for more of the same," said Ben Critchley, a sales trader at IG Index.

With the markets so fixated on developments in the U.S., developments in Europe's debt crisis are taking a backseat -- to the likely relief of the eurozone's policymakers.

Perhaps, the debt crisis' move away from the spotlight has helped a run of government bond auctions run smoothly. France easily sold euro9 billion bonds Thursday, following on from successful auctions Wednesday from Germany and Portugal.

The French Treasury reported that it sold euro8.975 billion through auctions of different-dated debt and that the yield on the benchmark ten-year issue rose to 3.36 percent from 2.87 percent at the previous auction -- the increase in the yield was in line with increasing yields in the secondary markets since November for reasons including the debt crisis.

Earlier in Asia, Japanese stocks jumped to a nearly 8-month high Thursday on the weaker yen -- a key worry in Japan in recent months has been the potentially negative impact of the higher yen on the country's major exporters.

Japan's Nikkei 225 stock average, Asia's largest market, rose 1.4 percent to 10,529.76, its highest close since May 13

Gains elsewhere in Asia lagged Tokyo's. Hong Kong's Hang Seng index was up a marginal 0.1 percent to 23,786.30. South Korea's Kospi was down 0.2 percent to 2,077.61, while China's Shanghai Composite index lost 0.5 percent to 2,824.20.

Rising expectations over the pace of the U.S. recovery helped oil prices move back above $90 a barrel Wednesday.

Benchmark oil for February delivery fell 29 cents to $90.01 cents in electronic trading on the New York Mercantile Exchange.

[Associated Press; By PAN PYLAS]

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

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