Stocks brush off Italy downgrade on Greece hopes

[September 20, 2011]  LONDON (AP) -- Global stocks brushed aside the latest credit rating downgrade of Italy as investors hoped Greece would make progress in discussions with debt inspectors to get its hands on more bailout money, helping it avoid a messy default.

Greek Finance Minister Evangelos Venizelos is to hold a teleconference Tuesday evening with officials from the European Commission, International Monetary Fund and European Central Bank, collectively known as the troika, to convince them the country will meet strict budget targets promised in return for the rescue funds.

Markets are fairly hopeful that Greece will do enough to get its hands on the money and avoid a default that could plunge Europe's banking system into turmoil. Stocks across Europe and the euro were trading higher, brushing aside the latest downgrade of Italy's credit rating downgrade from Standard & Poor's and a survey of German investor confidence showing Europe's largest economy slowing down sharply.

"Last night's conference call between the troika and the Greek government ended with an air of optimism about it, with reports of some sort of deal being close," said Michael Hewson, markets analyst at CMC Markets.

All Europe's main markets were in positive territory, including the Milan exchange. The euro was buoyed too, trading 0.7 percent higher at $1.3708.

Germany's DAX was 2.4 percent higher at 5,546 while the CAC-40 in France rose 1.5 percent to 2,982. The FTSE 100 index of leading British shares was up 1.6 percent at 5,346.

U.S. stocks were also poised for solid gains at the open later -- Dow futures were up 0.8 percent at 11,415 while the broader Standard & Poor's 500 futures rose 0.9 percent at 1,208.

Though investors think Greece will avoid a default, the consensus is that the country will have to restructure its debts in some form next year given that it's likely to remain mired in recession.

Beyond Europe, investors will also be monitoring the latest two-day policy meeting of the U.S. Federal Reserve, which begins Tuesday.

Many economists expect the Fed to announce some measures to jolt the sputtering U.S. economy.

Last month, the Fed promised to keep its key interest rate near zero through mid-2013.

Some economists expect the Fed to eventually try for the third time to stimulate growth through a program to buy Treasurys to lower long-term interest rates. That's a step known as "quantitative easing."

"With the global economy buffeted by the recent equity market volatility and downside risks emanating from the eurozone debt and banking crisis, the odds favour the Fed signaling its intent to loosen policy again," said Neil MacKinnon, global macro strategist at VTB Capital.

Earlier in Asia, Japan's Nikkei 225 index fell 1.6 percent to close at 8,721.24 as export shares sagged amid a persistently strong yen that weighs on company profits. Australia's S&P/ASX 200 dropped 1 percent to 4,040.20.

Japanese Finance Minister Jun Azumi told reporters Tuesday that the recent sharp rise of the yen has slowed the pace of the country's economic recovery from the March earthquake and tsunami. Tokyo has not ruled out intervening in the currency market to stem the yen's rise against the U.S. dollar and other major currencies.

The dollar was 0.3 percent lower at 76.44 yen.

Though Japanese stocks fell, Hong Kong's Hang Seng rose 0.5 percent to 19,014.80 and South Korea's Kospi ended 0.9 percent higher at 1,837.97. Mainland China's Shanghai Composite Index rose 0.4 percent to 2,447.76 while the smaller Shenzhen Composite Index was 0.4 percent higher at 1,071.60.

Oil prices tracked equities higher too -- benchmark oil for October delivery was up 87 cents at $86.57 in electronic trading on the New York Mercantile Exchange

[Associated Press; By PAN PYLAS]

Pam Sampson in Bangkok contributed to this report.

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