World stocks buoyed by Fed, but dollar slides

[November 25, 2009]  LONDON (AP) -- World stock markets rose Wednesday after the U.S. Federal Reserve indicated that interest rates will remain at super-low levels for a while yet. Meanwhile, the dollar slid to a 10-month low against the yen after the central bank said the currency's decline had been "orderly."

In Europe, the FTSE 100 index of leading British shares was up 28.89 points, or 0.5 percent, at 5,352.85 while Germany's DAX rose 29.89 points, or 0.5 percent, to 5,799.20. The CAC-40 in France was 24.87 points, or 0.7 percent, higher at 3,809.49.

Earlier, Japan's Nikkei 225 stock average advanced 40.06, or 0.4 percent, to 9,441.64 -- its first rise in five days. And China's Shanghai benchmark rebounded from a big retreat the day before, closing up 66.64 points, or 2.1 percent, at 3,290.17.

Sentiment in the markets was buoyed by further confirmation from the Fed that it plans to keep interest rates at "exceptionally low levels" for an "extended period" -- currently the Fed funds rate stands at a range between zero and 0.25 percent.

The minutes to the last rate-setting meeting, published Tuesday, also showed that a number of the rate-setters thought that it could take five or six years to make up the output lost during the recession and get unemployment back to normal levels.

"Overall, nothing here to suggest that policy will be tightened in any way in the foreseeable future," said Paul Ashworth, senior U.S. economist at Capital Economics.

Though the Fed said its extraordinary policy measures should strengthen economic growth and that low interest rates had the potential to fuel "excessive risk-taking in financial markets," investors latched onto the hope that borrowing costs will remain low for much of next year.

That helped U.S. stocks to pare much of their earlier losses after a downward revision to third-quarter U.S. economic growth stoked fears that valuations in the stock markets were not justified by economic fundamentals.

Wall Street was poised to open modestly higher too -- Dow futures were up 35 points, or 0.3 percent, at 10,440 while the broader Standard & Poor's 500 futures rose 4.8 points, or 0.4 percent, to 1,017.90.

Attention in the U.S. later will focus on a raft of economic data to be released before traders pack up for the Thanksgiving Holiday. Key items on the agenda include durable goods and new home sales data for October as well as a key gauge of inflation monitored by the Fed.

Though stocks managed to push higher, the dollar slid again after the Fed said the recent fall in the U.S. currency had been "orderly." The euro hit a high of $1.5044, just short of its 15-month high of $1.5061. Meanwhile, the dollar fell 0.9 percent to 87.78 yen, having earlier dropped to 87.54 yen, its lowest level since January.

"The dollar decline was called orderly, indicating that the Fed is relaxed about the current pace of dollar weakness," said Hans Redeker, global head of foreign exchange strategy at BNP Paribas.

Elsewhere in Asia, Hong Kong's Hang Seng index advanced 188.66 points, or 0.8 percent, to 22,611.80, while South Korea's Kospi climbed 5.46 points, or 0.3 percent, to 1,611.88. Australia's S&P/ASX 200 added 0.8 percent to 4,722.20 and Singapore's benchmark was up 0.3 percent.

The Australian dollar was in focus Wednesday after Ric Battellino, the deputy governor of the Reserve Bank of Australia said the economy had entered a "new upswing" and that growth would continue for a "few more years yet."

The Australian dollar was up 0.9 percent at $0.9274 in the wake of his remarks.

Oil hovered above $76 a barrel, with benchmark crude for January delivery up 39 cents at $76.41 a barrel. The contract fell $1.54 on Tuesday to settle at $76.02.

[Associated Press; By PAN PYLAS]

AP Business Writer Joe McDonald in Beijing contributed to this report.

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