Optimism returns overnight to world markets

The Federal Reserve's latest update says the US economy is still expanding, but at a slower rate. Photo / Thinkstock

Shares on Wall Street and in Europe rose as strong demand for debt auctions in Europe and the US Federal Reserve's beige book comments gave rise to renewed optimism the global recovery was on track.

The Fed said the US economy maintained its expansion while showing "widespread signs of a deceleration" in mid-July through the end of August, according to a survey by 12 regional Fed banks.

Five regional banks reported "economic growth at a moderate pace" and two pointed to "positive developments or net improvements." The remaining five banks said conditions were mixed or decelerating.

The report underpinned the Fed's view that while the recovery from the worst recession in seven decades has slowed, the economy isn't relapsing into a contraction.

In late trading, the Dow Jones Industrial Average advanced 0.65 per cent, the Standard & Poor's 500 Index gained 0.90 per cent and the Nasdaq Composite Index climbed 1.09 per cent.

"Any kind of stability signal coming out of Europe will boost that demand. There's a lot of cash on the sidelines," Michael Mullaney who helps manage Us$9 billion at Fiduciary Trust Co in Boston, told Bloomberg News.

"The latest economic figures in the US were encouraging. We're seeing a pop in an oversold market."

Among the most active on Wall Street were New York Times, Bank of America, JPMorgan & Chase and Apple.

Shares in the New York Times rose as much as 8 per cent on speculation that Mexican billionaire Carlos Slim was planning to acquire a bigger stake in the company.

"We know that Carlos Slim has been interested in the New York Times and today those rumours are recirculating that he would make a bid for the Times," Jon Najarian founder of Web information site optionMonster.com in Chicago, told Reuters. "But he has repeatedly denied such interest."

Slim, who owns 6.9 per cent of the Times' stock, loaned the company US$250 million in January 2009.

The New York Times declined to comment, according to Reuters. A Slim spokesman in Mexico City was not available for a comment.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street's 'fear gauge', fell 2.56 per cent to 23.19.

The Stoxx Europe 600 Index rose 1 per cent to 262.33.

Across Europe, the U.K.'s FTSE 100 gained 0.41 per cent, Germany's DAX rose 0.76 per cent and

France's CAC 40 climbed 0.92 per cent.

Among the most active stocks in Europe were BP, Sanofi-Aventis and Ericsson.

US Treasuries fell as Portugal's sale of debt maturing in 2021 attracted higher demand compared with a previous offering, easing concern about the sovereign debt crisis in Europe.

Meanwhile the US government's US$21 billion auction of the securities drew the highest level of participation in a year from a group including foreign central banks.

The current 10-year note yield rose 4 basis points, or 0.04 percentage point, to 2.63 per cent at 2.17pm in New York, according to BGCantor Market Data.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.43 per cent to 82.54.

The euro rose against the US dollar, bolstered by successful bond auctions in Portugal and Poland. The euro was last up 0.4 per cent to US$1.2736, and gained 0.5 per cent to 106.83 yen.

The Canadian dollar soared against the US currency after the Bank of Canada raised its key interest rate by 25 basis points to 1 per cent and left the door open for further increases. The greenback was last down 1 per cent at C$1.0373.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.17 per cent to 274.27.

Oil rose. Investors focus on weekly oil inventory data, released later today and expected to show crude stocks rose for a third consecutive week, along with an increase in supplies of distillates, which includes diesel fuel and heating oil.

US crude for October delivery advanced 1.17 per cent to US$74.96 a barrel by 1.50pm EDT.

"Equity markets are bouncing today, which is some support for the crude market, and there's chatter about forward buying as a bet on 2011 economic recovery," Tim Evans, analyst at CitiFutures Perspective in New York, said in a research note, according to Reuters.

The ICE Brent October contract rose 73 cents to US$78.47.

Gold rose a third straight session and silver climbed to a 2-1/2 year high as lingering concern about the global economic outlook bolstered the appeal of perceived safe-haven assets.

Spot gold was bid at US$1,257.90 an ounce at 1500 GMT, against US$1,253.10 late in New York on Tuesday. Gold last hit a record $1,264.90 in June.

US gold futures for December delivery rose US$0.80 to US$1,260.20.

Silver was bid at US$19.97 an ounce against US$19.83.

UBS precious metals strategist Edel Tully raised her gold price forecasts based on gold's traditional outperformance in September, coupled with safe-haven demand emanating from the focus on sovereign fiscal burdens, according to Reuters.

"Given the range of factors conspiring to push gold higher in September, we raise our one-month forecast to US$1,300, from US$1,230 previously. We also lift our three-month target to US$1,300, from US$1,200 previously," she wrote in a report.