Acquisitions brings optimism to world markets

Investors began the week on a cautiously optimistic note, lifting equities on both sides of the Atlantic, helped primarily by Google's unexpected US$12.5 billion offer to buy Motorola Mobility Holdings.

In late trading, the Dow Jones industrial average gained 1.63 per cent, the Standard & Poor's 500 Index rose 1.86 per cent while the Nasdaq Composite Index advanced 1.35 per cent.

Europe's Stoxx 600 Index ended the day with a 0.2 per cent gain, with gains in London, Frankfurt and Paris ahead of tomorrow's Paris meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy.

The acquisition news shows there's some confidence in the market, but investors should anticipate more volatility, Thomas Villalta, portfolio manager for Jones Villalta Asset Management in Austin, Texas, told Reuters.

"Europe has been extraordinarily slow in taking any sort of decisive action to improve perceptions ... that means to me we could have volatility through the end of the quarter," Villalta said.

Shares in Motorola Mobility soared more than 50 per cent after Google offered to buy the mobile phone maker for US$12.5 billion cash in a bid to bolster its Android mobile operating system.

The move fuelled speculation of other takeovers in the industry, boosting stocks including Research in Motion and Nokia.

While the overall trend for US stock prices should remain lower, levels of volume, volatility, breadth and sentiment were signalling a bounce, John Kosar, director of research at Asbury Research in Chicago, told Reuters.

"Until those extremes get unwound, the market is likely to carry a bid for the near terms," Kosar said.

In currency markets, the Swiss franc plunged against the euro, putting it on track for its biggest three-day decline since the European currency's 1999 debut on speculation Switzerland will do more to check the franc's appreciation amid investors' appetite for safe-haven investments.

"Given the strength of the franc, they're trying to think of everything," Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc's RBS Securities unit in Stamford, Connecticut told Bloomberg News. "It's tough to say at this point if whatever actions they take can reverse the safe-haven flows."

The franc shed 2.2 per cent to 1.1331 per euro at 2.56pm in New York.

Meanwhile, the Japanese yen weakened against the euro as well amid signs Japan is about to intervene again to curb the currency's strength.

"I will continue to closely watch the markets and take bold action if it becomes necessary," Finance Minister Yoshihiko Noda said yesterday during a television talk show on the public broadcaster NHK.

Japan's economy shrank at a 1.3 per cent annual pace in the three months through June, the third quarter of contraction, government data showed yesterday.

And lest investors think the US Federal Reserve has moved to the sidelines, Atlanta Fed President Dennis Lockhart says that isn't the case.

"If additional actions are required, I can assure you the Federal Reserve is not out of bullets," Lockhart said today in a speech in Florence, Alabama.

"Expansion of the balance sheet or changes in the composition of the Fed's asset portfolio are available, in my view. These could be quite effective, particularly if done in sufficient size, in the event that the economy retreats back into contractionary territory."