Markets recover from European debt jitters

July 13, 2011 - 7:14 AM
Japan Markets

Money traders work under a screen flashing the U.S. dollar against the Japanese yen at a foreign exchange in Tokyo, Japan, Wednesday, July 13, 2011. The dollar fell against yen following worries over Europe's debt crisis. (AP Photo/Itsuo Inouye)

LONDON (AP) — World stocks rose on Wednesday as robust Chinese growth figures helped steady investor sentiment, which had been shaken this week by fears Europe's debt crisis was spreading to large countries like Italy.

Data out of China showed that its economy grew by 9.5 percent in the April-June quarter. Although that is lower than the previous quarter's 9.7 percent growth rate, it alleviates concerns of an abrupt slowdown and gives Beijing room to tighten controls to fight inflation.

The government has been trying to tame the world's No. 2 economy, where inflation hit a three-year high in June. Beijing has hiked interest rates five times since October and tightened controls on lending and investment.

"Today's data should dampen fears that the economy is heading into a hard landing," said Mark Williams, senior China economist at Capital Economics.

The news helped soothe investors' nerves after days of volatile trading, particularly in Europe, where fears grew that the debt crisis would infect core countries such as Italy, the eurozone's third-largest economy.

Investors were spooked by EU governments' failure to agree on a second rescue package for Greece and their insistence to get banks to contribute to bailouts, even at the cost of a debt default.

The uncertainty left markets fearing the worst — stocks, bonds and the euro plummeted. Italian bond markets seized up and its main stock index swung wildly. Prices stabilized only after the Italian government said it would accelerate approval of its austerity measure to get it cleared by Friday.

Bolstered by the news, markets brushed off a downgrade of Ireland's bonds to junk status by ratings agency Moody's. The agency said it sees a growing risk the country will need a second bailout once its current rescue package expires at the end of 2013.

Analysts said the report was not a shock after Moody's had downgraded Portugal a week earlier for much the same reasons.

Undeterred by the Moody's report, sentiment recovered strongly on Wednesday.

Milan's exchange rallied 2.5 percent and Italy's bond yields edged down further. Britain's FTSE 100 added 0.5 percent to 5,895.88, while Germany's DAX rose 0.8 percent to 7,229.91 and France's CAC gained 0.5 percent to 3,791.83.

Futures augured a higher open on Wall Street as well — Dow futures were up 0.6 percent at 12,488 while S&P futures were 0.7 percent higher at 1,320.10.

In the U.S., traders will be watching comments from Federal Reserve Chairman Ben Bernanke later Wednesday. He is expected to voice concerns about the slow pace of improvements in the labor market and the impact of high energy prices. Analysts do not expect him to signal any shift in the Fed's ultra-loose monetary policy.

"The Fed is in no hurry to exit its current exceptionally accommodative policy, in our view," said Michael Carey at Credit Agricole CIB.

That means the dollar is unlikely to get a boost from Bernanke's comments — currencies rise on expectations of higher yields, and while the Fed is keeping interest rates near zero, European rates have been hiked twice already this year.

Helped by the recovery in sentiment, the euro was up 0.8 percent at $1.4087 by midday in Europe, while the dollar was down 0.2 percent at 79.24 yen.

In Asia, indexes mostly closed higher thanks to the strong Chinese growth data.

Hong Kong's Hang Seng index added 1.2 percent to 21,926.88, the Shanghai Composite index rose 0.5 percent to 2,768.21, and South Korea's Kospi gained 0.9 percent at 2,129.64.

Japan's Nikkei 225 stock average finished up 0.4 percent at 9,963.14 after the yen pulled back from its highest level against the U.S. dollar since mid-March earlier in the day.

After the dollar fell under the 79-yen level, Japanese Finance Minister Yoshihiko Noda described the move as "slightly one-sided." His comment to reporters triggered speculation that Japan might intervene in currency markets.

Australia's S&P/ASX 200 rose 0.4 percent to 4,514.80, while New Zealand's benchmark slipped 0.2 percent to 3,424.35.

Oil prices hovered above $97 a barrel after a report showed U.S. crude supplies unexpectedly rose last week, suggesting demand is weak.

Benchmark oil for August delivery was up 11 cents to $97.54 a barrel in electronic trading on the New York Mercantile Exchange. Crude gained $2.28 to settle at $97.43 on Tuesday.

___

Tomoko A. Hosaka in Tokyo contributed to this report.