Sunday, September 16, 2012

Global stock markets rise with US Fed stimulus plan

Market Data

Last Updated at 03:08 ET
Market index
Current valueTrendVariation% variation
Dow Jones13593.37Up53.510.40%
S&P 5001465.77Up5.780.40%
FTSE 1005915.55Up95.631.64%
BBC Global 306479.65Up15.660.24%
Global stock markets have risen after the US Federal Reserve moved to pump more money into the economy. The Paris market rose 2.3%, while UK and German indexes closed up 1.5%. Wall Street ended the day 0.4% higher.

It followed the Fed's decision on Thursday to inject $40bn (£25bn) a month into the US economy.
But fears over the global economy persisted as the International Monetary Fund and European Central Bank denied they were in bailout talks with Spain. Eurogroup finance ministers are meeting in Cyprus for talks on measures to end the current eurozone debt crisis. On Friday, Jean-Claude Juncker, head of the Eurogroup, announced that the new eurozone rescue fund would be up and running by the end of October.

The ESM is an essential part of a European Central Bank plan to buy bonds from indebted governments such as Spain and Greece in order to bring down their cost of borrowing. Countries such as Spain would need to make a formal request to the ESM for help before the ECB could intervene.

Federal Reserve action
The plan to buy up US mortgage debt will continue until further notice, the Fed said on Thursday. The central bank also kept interest rates at below 0.25%. The aim is to reduce long-term borrowing costs for firms and households.

On Friday, Hong Kong's Hang Seng added 2.7% and Japan's Nikkei 225 rose 1.8%. Investors hope the Fed's measures will revive growth in the US economy, the world's biggest and a key market for Asian and European exports.

The Fed's promise that the programme was open-ended and would continue until the US economy showed signs of recovery has bolstered confidence, said analysts. In a research note from HSBC, analysts said that the Fed "is trying to convey to financial market participants that they can count on low interest rates and accommodative monetary policy for a long time and not to expect a reversal of policy in reaction to modest improvement in GDP growth or in the unemployment rate".

Yields on Spanish and Italian bonds also fell, easing pressure on borrowing costs for the two heavily-indebted nations. On Friday, Italy's 10-year borrowing rate fell under the 5% mark for the first time since March.

However, the depth of Spain's problems were underlined on Friday with official data showing that public debt has reached a record 75.9% of gross domestic product, fuelling doubts over the country's ability to manage its finances.

There were suggestions that the meeting would discuss a bailout of Spain. However, any immediate decision looks unlikely after the country's economy minister said on Friday that the government was working on a new set of structural reforms.

There have been growing fears about the global economy, with a weak recovery in the US and the continuing debt crisis in the eurozone. US unemployment, which has topped 8% for three years, is likely to be a key battleground in the upcoming presidential elections.

The slowdown in China's economy, the world's second-largest and one of its biggest drivers of growth since the global financial crisis, has fanned those fears. Prompted by these concerns, policymakers in these regions have been taking measures to try to spur a fresh wave of growth.

Meanwhile, China has cut its interest rates twice since June to bring down borrowing costs for businesses and consumers. Beijing has also lowered the amount of money that banks need to keep in reserve three times in the past few months to encourage further lending.

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