Hope for fast war sends world markets soaring

By JIM EAGLES AND REUTERS

Images of missiles and tanks pounding Iraq have given global financial markets hope of a speedy end to the conflict with investors sending share prices sharply higher and oil prices plunging.

The New Zealand sharemarket ended last week seemingly unmoved by the invasion of Iraq but virtually all other markets have been boosted by the end to pre-war uncertainty.

Wall Street started surging at the opening bell on Friday, prices bounced further amid rumours that Saddam Hussein had been killed by the initial missile assault, and continued to climb as traders watched flashing images of the devastating night time air raids on Baghdad.

The Dow Jones industrial average posted its best weekly percentage gain in more than 20 years, adding 235 points on Friday alone, or 2.8 per cent, to end at 8521.

"The market is clearly focused on the good news out of Baghdad [that victory is near], and as long as that continues, I think we'll probably see the market tend to be on the positive side," said Peter Gottlieb, portfolio manager at First Albany Asset Management in Chicago. "Everything else is kind of secondary at this point."

European and British shares also enjoyed sharp rises and closed at their highest level in two months.

There was further good economic news with a continued fall in oil prices which hit four-month lows on the news that US and British forces had secured key Iraqi oilfields and ports.

A big wave of extra Opec oil arriving in the West, replacing supply lost from war-torn Iraq, also helped ease the threat of shortages.

The positive market sentiment, accompanied by a surge in the value of the US dollar against other currencies, underlined a point global policymakers have made for months, that uncertainty about war with Iraq has been a key restraint on markets, consumer optimism and the economy's direction.

An economic report released on Friday emphasised the importance of a quick end to the Iraqi conflict.

The Economic Cycle Research Institute said war fears had taken its weekly leading index to a 10-week low just before the fighting actually started.

"If it is quicker and more decisive, we have a chance at tipping away from a recession," ECRI managing director Lakshman Achuthan said. "If something goes wrong and things get bogged down, we can tip toward more vulnerability, which would lead to recession."

Policymakers are obviously keeping a close watch on what happens.

The US Federal Reserve said it was instituting "heightened surveillance" of US economic activity.

In Europe, where growth is in the doldrums, authorities have been somewhat more explicit about pledging to do what was needed to keep growth from tipping into a slump.

The European Central Bank pledged its readiness to stabilise markets and pump in additional liquidity if necessary, as it did after the September 11, 2001, terrorist attacks.

EU finance ministers meeting in Brussells also said investors could trust them not to stand idle if the war wounded their economies.

The next opportunity for officials from the Group of Seven rich nations to discuss the economic impact of the war could be today when G7 deputy finance ministers and deputy central bank governors meet in Berlin.

The war factor

New Zealand NZSE-50 rose 0.31 per cent on Friday to be 2 per cent up on the low it hit on March 13.

Australia S&P/ASX 200 rose 0.6 per cent on Friday and is 6.2 per cent ahead of the four-year low also hit on March 13.

Britain FTSE-100 rose 2.5 per cent on Friday to end the week up 7.2 per cent.

Europe FTSE Eurotop 300 rose 3.4 per cent on Friday and closed for the week ahead by 7.6 per cent.

United States Dow Jones industrials index rose 2.84 per cent on Friday taking it to an 8.72 per cent gain for the week.