World stocks rise as China rate hike fear fizzles

[December 13, 2010]  BANGKOK (AP) -- World markets rose Monday as Chinese shares vaulted on relief that Beijing refrained from raising interest rates over the weekend.

The two main stock benchmarks in China, the world's No. 2 economy, were up about 3 percent each. Modest gains elsewhere in Asia, and in Europe, followed U.S. stocks reaching their highest levels in two years on Friday.

China's stocks got a boost after fears of a weekend rate high fizzled even amid news that inflation surged to a 28-month high of 5.1 percent in November. Instead, the central bank ordered another increase in banks' capital reserves in the latest move to reduce excess liquidity.

Investors were also encouraged by the outcome of an annual economic planning meeting, where leaders affirmed their determination to fight inflation while also keeping growth on track.

The benchmark Shanghai Composite Index gained 2.9 percent to 2,922.95. The Shenzhen Composite Index for China's smaller, second market jumped 3.1 percent to 1,338.43.

"The worries over an interest rate hike turned out to be simply a rise in the bank reserve ratio, which successfully ignited investors' enthusiasm. As long as there are not fresh monetary policy moves this year, the rebound will likely persist," said Liu Kan, an analyst at Guoyuan Securities, in Shanghai.

Other markets were subdued in comparison.

In early European trade, Britain's FTSE 100 added 0.6 percent to 5,847.70 and Germany's DAX rose 0.3 percent to 7,025.03. France's CAC 40 climbed 0.7 percent to 3,884.26.

Wall Street was set for a flat open with Dow futures up 3 points, or less than 0.1 percent, to 11,347. S&P futures slipped 0.1 point to 1,235.80.

In Asia, Japan's Nikkei 225 stock average closed up 81.94 points, or 0.8 percent, to 10,293.89 and South Korea's Kospi added 0.5 percent to 1,996.59.

Hong Kong's Hang Seng index rose 0.7 percent to 23,317.61 and Australia's S&P/ASX 200 inched 0.2 percent higher to 4,757.10. Stocks in Taiwan, India and Thailand also rose.

In New York on Friday, an encouraging trade report and signs that a tax cut package would pass the Senate sent U.S. stocks to their highest levels in two years. The Dow Jones industrial average rose 40.26, or 0.4 percent, to 11,410.32.

In currencies, the euro fell to $1.3223 from $1.3226 late Friday in New York. The dollar rose to 84.28 yen from 83.91 yen.

Benchmark crude for January delivery was up 61 cents at $88.40 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 58 cents to settle at $87.79 on Friday.

[Associated Press]

AP researcher Ji Chen in Shanghai contributed to this report.

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