World markets rise, brushing off China rate hike

[July 07, 2011]  BANGKOK (AP) -- World markets managed modest gains Thursday, shrugging off a weak U.S. growth report and an interest rate hike in China.

Oil prices rose above $97 a barrel as a report showed U.S. crude supply fell more than expected last week, suggesting demand is improving. The dollar slipped against the euro and the yen.

In early European trading, Britain's FTSE 100 rose 0.3 percent to 6,021.71 and Germany's DAX was 0.3 percent higher to 7,454.30. In Paris, the CAC-40 was up 0.3 percent, to 3,971.59. Wall Street was headed for another day of gains, with Dow Jones industrial futures and S&P 500 futures both up 0.3 percent, to 12,600 and 1,339.30 respectively.

Gains in Asia were modest. Hong Kong's Hang Seng index rose marginally to 22,530.18 while South Korea's Kospi was 0.4 percent higher to 2,180.59. Japan's Nikkei 225 dropped 0.1 percent to close at 10,071.14, a day after hitting its highest level since the country was battered by an earthquake and tsunami on March 11 that killed tens of thousands of people and sent the economy reeling.

Japanese exporters dipped on a strengthening yen, which makes products that are sent overseas more expensive. Nissan Motor Corp. lost 1.6 percent while Panasonic Corp. dipped 1.8 percent.

South Korea's Samsung Electronics lost 2 percent after the company said its profits slumped in the second quarter as strong performance in fast-growing smartphones could not overcome weakness in liquid crystal displays. Australian budget airline Virgin Blue Holdings jumped 9.5 percent, as competitor Tiger Airways struggled following a suspension of flights due to safety concerns. Tiger was down 0.5 percent.

Investors chose to brave the headwinds -- including the downgrade by Moody's of Portugal's credit rating to "junk" status late Tuesday and another interest rate hike by China's central bank -- in search of attractive prices. The rate hike was even seen by some as a positive step toward fighting inflation.

China has been raising interest rates at roughly two-month intervals since October 2010. But Wednesday's hike came three months after the prior one, indicating that China was taking a more gradual approach toward trying to tamp down spiraling prices.

"You can see the timing has widened, which means the tightening policy has actually slowed down, which is a good sign for the markets," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.

Mainland Chinese shares were mixed. The benchmark Shanghai Composite Index lost 0.6 percent to finish at 2,794.27 while the Shenzhen Composite Index edged up 0.1 percent to 1,202.32. Metals suppliers that might suffer from weaker construction demand due to the rate hike were among the biggest declines.

China Minmetals Development Co. lost 3.1 percent while Chinalco, or Aluminum Corp. of China, lost 2.3 percent. Market heavyweight PetroChina Ltd. was off 1.1 percent and China's biggest commercial bank, Industrial & Commercial Bank of China Ltd., shed 1.4 percent.

"Market sentiment was divided today. Some investors believed there will be no more bad news for the market after the interest rate rise and the others believed monetary tightening will simply not go away. In the end, the pessimistic sentiment has prevailed," said Mao Sheng, strategist with Huaxi Securities in Chengdu.

On Wall Street, stock indexes managed slight gains Wednesday as investors shrugged off slower growth in the U.S. service sector.

The Institute for Supply Management reported that business growth slowed at U.S. service providers in June. On the positive side, June marked the 19th consecutive month of growth at service companies, which employ the majority of American workers.

The Standard & Poor's 500 index rose 1.3 percent to close at 1,339.22. The Dow Jones industrial average rose 0.4 percent to close at 12,626.02. The Nasdaq added 0.3 percent to 2,834.02.

Later Thursday, the European Central Bank is expected to raise its main interest rate by a quarter percentage point to 1.5 percent, its second hike since April as it tries to rein in above-target inflation levels.

Benchmark oil for August delivery was up 59 cents to $97.23 a barrel in electronic trading on the New York Mercantile Exchange. Crude lost 24 cents to settle at $96.65 on Wednesday.

In currencies, the euro rose to $1.4311 from $1.4296 in late trading Wednesday in New York. The dollar weakened to 80.93 from 80.97 yen.

[Associated Press; By PAMELA SAMPSON]

AP researcher Yu Bing contributed from Beijing.

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