European markets surge ahead of rate decisions

[December 04, 2008]  LONDON (AP) -- European stock markets rose Thursday, despite a mixed performance in Asia, as investors cheered Sweden's Riksbank massive rate cut and predicted aggressive moves later from the European Central Bank and the Bank of England.

The FTSE 100 index of leading British shares was up 85.26 points, or 2.0 percent, at 4,255.22, while Germany's DAX surged 159.30 points, or 3.5 percent, to 4,726.54. The CAC-40 in France was 80.55, or 2.5 percent, higher at 3,247.20.

Sentiment across Europe was boosted by the news that the Riksbank cut rates by 1.75 percentage points to 2.00 percent, much more than the 1 percentage point decrease expected in the markets.

The bank said the substantial cut was needed to dampen the fall in employment and meet the Riksbank's inflation target of 2 percent. It also said the large cut was necessary because monetary policy has recently not had as large an impact on the economy as it normally does.

The bigger than expected cut fostered a rally in stocks across Europe as investors were cheered by the prospect of similarly aggressive moves by the European Central Bank and the Bank of England.

While many observers think the European Central Bank will reduce its benchmark rate by three quarters of a percent to 2.50 percent -- with some thinking it may cut by a full percentage point -- the Bank of England is predicted to lower its rate by a whole percentage point to 2.00 percent.

"Expectations are for bold moves here and this is arguably already priced into stocks so failure to deliver could end up weighing on equities," said Matt Buckland, a dealer at CMC Markets.

Further woeful data out of Britain reinforced expectations of a 1 percentage point decrease and stoked some talk that the Bank of England may cut rates by 1.50 percentage points for the second month running, which would take the benchmark rate to 1.50 percent, its lowest level since the bank was founded in 1694.

Earlier, Asian stocks were mixed with Japan's Nikkei 225 average down 79.86 points, or 1 percent, to 7,924.24 as automakers continued to slide amid signs of slumping demand for new vehicles in the United States and Toyota said it was briefly suspending production at three plants in Japan later this month.

Investors were also nervous about the fate of the U.S. automakers trying to persuade skeptical lawmakers to save their troubled industry with $34 billion in emergency aid.

Hong Kong's Hang Seng index dipped 0.6 percent to 13,509 points, but mainland China's Shanghai Composite index rose 1.8 percent to 2001.5 on news that a government fund had bought shares in a major bank.

Markets in India, Singapore and Indonesia rose, but those in Taiwan, the Philippines and Malaysia fell.

In the U.S., futures markets were also predicting a mixed opening after Wednesday's 2.1 percent rally in the Dow Jones industrial average. The Dow has gained more than 442 points in the past two sessions, recouping more than half of Monday's nearly 680 point slide.

Dow futures were down 8 points, or 0.1 percent, at 8,571 while the broader Standard & Poor's 500 futures were up 2.1 points, or 0.2 percent, to 870.60.

Most investors in the U.S. will be awaiting Friday's non-farm payrolls data for November, which after a run of bad news could come in much worse than anticipated.

Some analysts were now predicting that the world's biggest economy shed as many as 350,000 jobs in November.

"I think investors are conditioned to the fact that we won't see any good jobs reports until the middle of next year," Lun said. "Markets are resigned to the fact that unemployment will continue increasing."

Elsewhere, oil prices fell to their lowest in level in nearly four years as investors expect a gloomy global economy to hurt crude demand. Light, sweet crude for January delivery was down 70 cents to $46.09 a barrel in electronic trading on the New York Mercantile Exchange.

In currencies, the Riksbank's move and the upcoming interest rate decisions elsewhere in Europe caused extreme volatility. The euro was down 0.8 percent at $1.2598 while the pound was down 1.7 percent at $1.4509, having earlier fallen to $1.4467, its lowest level against the dollar in over six and a half years.

Meanwhile, the dollar was down 0.6 percent at 92.73 yen.

[Associated Press; By PAN PYLAS]

Associated Press Business Writer Stephen Wright in Bangkok contributed to this report.

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