European stocks up after Dow surge

LONDON (AP) – Europe’s stock markets opened mostly higher Wednesday after a stunning rally on Wall Street and further gains in Asia overnight as investors awaited possible interest rate cuts from central banks in the U.S. and Japan.

The FTSE 100 index of leading British shares was 149.47 points, or 3.8 percent, higher at 4,075.85 and France’s CAC-40 was up 184.53 points, or 5.9 percent, at 3,299.45.

Germany’s DAX index though was sharply lower as shares in Volkswagen AG, which have risen fivefold since Friday, dropped back by over 40 percent after the car maker’s biggest shareholder Porsche AG said it will offer some stock to ease liquidity constraints.

Earlier, Japan’s Nikkei index closed 589.98 points, or 7.7 percent, higher at 8,211.90 in the wake of the Dow Jones’ 889 point, or 11 percent, rally Tuesday. The Dow’s percentage rise Tuesday was its second biggest ever.

The renewed buying has been stoked by expectations that both the U.S. Federal Reserve and the Bank of Japan will cut interest rates this week and provide a further stimulus to the world economy which should foster some renewed risk appetite in markets.

The Fed is expected to cut its target fed funds rate by half a percentage point to 1 percent later Wednesday. Markets are also holding out the hope the Bank of Japan would trim its interest rate a quarter percentage point from the already low 0.5 percent.

The European Central Bank and Bank of England are also expected to follow suit and cut borrowing costs at their next scheduled rate-setting meetings next Thursday.

Despite signs that investors are looking for bargains after the turmoil of the last month, a sense of unease still prevails with the world economy and financial system fragile, evidenced overnight by the $25 billion package to help Hungary.

“This is still a volatile world as the bizarre 11 percent rose in the Dow overnight demonstrates,” said Daragh Maher, an analyst at Calyon.

“Given that this was reportedly on the back of bargain hunting, one has to query why the market did not see similar value on Monday when the Dow continued to languish,” he added.

Wall Street is expected to give up some of those gains when it opens later with futures markets predicting signaling a weaker opening for the two main U.S. indices in Wednesday trade. Dow and Standard & Poor’s index futures were both down about 2 percent.

“After such huge gains yesterday a degree of profit taking at the open on Wall Street would pose few surprises,” said Matt Buckland, a dealer at CMC Markets.

Elsewhere in Asia, the regional rally fizzled by the afternoon as traders cashed in profits amid fresh worries about company earnings.

Hong Kong’s Hang Seng Index, up nearly 5 percent in early trading, trimmed its gain to just under 0.9 percent in volatile trade after a spectacular 14.4 percent rise the day before. Australia’s S&P/ASX200 climbed 1.3 percent, helped by higher commodity prices.

South Korea’s index pared its morning gains and dropped 3 percent as bank stocks pulled back on fears they may cut dividends after the government guaranteed their foreign currency loans.

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