World markets shoot higher after Fed signals waning US recession; Hong Kong jumps 2 per cent

By Jeremiah Marquez, The Associated Press

HONG KONG - World stock markets shot higher Thursday after the U.S. Federal Reserve said the world's largest economy appeared to be "levelling out" from its worst recession in decades.

Almost every major market in Asia was green after tumbling the day before ahead of the U.S. central bank's announcement, with Europe following the advance in early trade. Oil prices were steady near $71 a barrel and the dollar gained against the yen.

Japan's Nikkei 225 stock average rose 82.19 points, or 0.8 per cent, to 10,517.19, while Hong Kong's Hang Seng jumped 426.06, or 2.1 per cent, or 20,861.30. India's Sensex was up 2.5 per cent in afternoon trading.

"We have more and more confirmation the U.S. recession is ending and investors are currently buying into this," said John Mar, co-head of sales trading, Daiwa Securities SMBC Co. in Hong Kong.

At the same time, Mar said there's some fear that the rally could hit a wall and reverse in the coming weeks. Flows of money into investment funds were getting choppy after months of solid growth and traders were increasingly placing bets the Standard&Poor's 500 index, up nearly 50 per cent since March, will retreat next month, buying so-called put options.

Markets in Taiwan, Australia and Singapore gained around 2 per cent apiece. Shanghai's index righted itself 0.9 per cent to 3,140.56 following a nearly 5 per cent tumble the previous session. Korea's Kospi closed little changed.

In Europe, benchmarks in Britain, Germany and France rose nearly 1 per cent in early trade. Wall Street was poised for a stronger opening Thursday with Dow futures up 74, or 0.8 per cent, at 9,393.

Optimism about the American economy took hold after the Fed, wrapping up its two-day policy meeting, issued a rosier assessment of the economy and said it would keep to its key interest rate near zero. In another sign of confidence in a U.S. revival, the central bank said it would dial back one of its main emergency lifelines to the economy - a program to buy government securities as a way to keep rates on mortgages and other consumer debt lower.

But the tapering of America's recession wouldn't automatically spell robust demand for Asia's export-dependent countries, said Thomas Lam, the senior treasury economist at the United Overseas Bank in Singapore. He noted the Fed said consumer spending was still hampered by, among other things, mounting job losses and weak home prices.

"The drawback here is U.S. consumers are not going to be the driving factor for Asian exports anytime soon," Lam said. "It's going to take time for consumers to get back. So much wealth has been destroyed and the labour market is still fragile. Asian countries will not be able to rely on the U.S. like before."

The Fed's reassurance that an economic turnaround was at hand sent U.S. markets higher overnight.

The Dow Jones industrial average rose 120.16, or 1.3 per cent, to 9,361.61. The Standard&Poor's 500 index rose 11.46, or 1.2 per cent, to 1,005.81, while the Nasdaq composite index gained 1.5 per cent to 1,998.72.

Oil prices climbed further in Asia trade, with benchmark crude for September delivery rising 68 cents to $70.84.

In currencies, the dollar slipped to 96.38 yen from 96.08 yen, and the euro rose to $1.4260 from $1.4201.