- The Washington Times - Thursday, March 19, 2009

LONDON (AP) - World stock markets were mostly higher Thursday on guarded optimism the U.S. Federal Reserve’s bold $1.2 trillion spending plan would bring a quicker end to the worst global slowdown in decades.

By noon in mainland Europe, Britain’s FTSE 100 was up 1.5 percent to 3,862.11, Germany’s DAX advanced 1.6 percent to 4,061.83, and France’s CAC 40 grew 1.1 percent to 2,789.48.

Their rise followed overnight gains on Wall Street after the U.S. central bank said it would pump more than $1 trillion into economy. The Fed plans to buy up to $300 billion long-term government bonds and some $750 billion in mortgage-backed securities, which would help revive the country’s sagging housing market.

The measures _ aimed at propping up demand and spending in the U.S. by driving down borrowing costs for consumers and companies alike _ stunned investors around the world. The Fed hasn’t set out to influence long-term interest rates by buying long-term bonds since the 1960s.

“The markets are responding favorably to signs the central banks are taking more aggressive action to boost the supply of money available for borrowing in the economy,” said Andrew Bell, head of research at Rensburg Sheppards, an investment management company in Britain. “I don’t think people are euphoric _ I think people realize the economy’s got pressure, but sentiment a couple of weeks ago was so steeped in gloom that the small piece of good news has begun turning things around.”

Most Asian markets posted small gains following the Fed’s surprise move, but Japanese exporters got whacked as the dollar tumbled against the yen.

And Wall Street appeared to be ready to give up some of its gains Thursday ahead of a key reading on unemployment, which is expected to show a slight dip in new workers filing for unemployment benefits. Dow Jones industrial average futures fell 0.3 percent to 7,417, Standard & Poor’s 500 index futures declined 0.3 percent to 788.90, and Nasdaq 100 index futures slipped 0.4 percent to 1,208.25.

In Europe, banking stocks were major gainers. Barclays rose 14 percent, Lloyds Banking Group jumped 16 percent, BNP Paribas climbed 4 percent and Deutsche Bank added 9 percent.

Bell said there were signs that sentiment toward the financial sector had become “less aggressive.” “The banking sector has had a lot of capital put into it and one day the market will decide that enough capital has been put in and it won’t go belly-up and it will be able to promote recovery,” he said.

“I don’t know whether we’re living through a sunny period between thunderstorms or whether we’re going towards the start of spring, but whichever is the case the people in the market who are saying ‘these assets are cheap’ are getting a bit of a hearing,” he added.

In Asia, most markets were buoyed after Wall Street gained for a sixth time in seven days on the Fed’s move. But while anything to support Western demand might help Asia’s export-reliant economies, analysts worried the ambitious scope of the Fed’s plans could signal U.S. economic prospects are even worse that originally thought.

“I think the desperate measures are a reflection of desperate times,” said Ben Pedley, Hong Kong-based managing director of LGT Investment Management Ltd., part of a European-based asset manager that administers some $81 billion.

“The fact that the Fed is taking these extraordinary measures may actually be a sign of just how bad things are to come in the U.S., and that’s bad news for Asia and Asia’s exporters,” he said.

Lingering anxiety about the U.S. economy and the central bank’s plan was underscored in three of Asia’s leading markets.

In Tokyo, the Nikkei 225 stock average lost 26.21 points, or 0.3 percent, to 7,945.96 as the Fed’s action weighed on the dollar and pulled back exporters like Toyota and Honda. Hong Kong’s Hang Seng gained 13.75, or 0.1 percent, to 13,130.92, in up-and-down trade, but South Korea’s Kospi closed down 0.7 percent at 1,161.81.

Mainland China’s Shanghai index rose almost 2 percent, while benchmarks in Australia, India, Singapore, Malaysia and Thailand all advanced.

The dollar’s drop against the yen hit Japan’s stock market as investors bet the Fed’s plan would expand dramatically the money supply and stoke inflation. The dollar fell to 95.72 yen from nearly 99 yen the day before. The euro was higher at $1.3505.

Honda shed 3 percent and Toyota was off 2.2 percent. A stronger yen erodes exporters’ income from overseas sales.

On Wednesday, the Dow Jones industrial average rose 1.2 percent to 7,486.58. The Standard & Poor’s 500 index added 2.1 percent to 794.35, and the Nasdaq composite index rose 2 percent to 1,491.22.

Oil prices rose in European trade, with benchmark crude for April delivery up $2.31 to $50.45 a barrel. On Wednesday, the contract fell $1.02 to settle at $48.14.

___

AP business writer Jeremiah Marquez in Hong Kong contributed to this report.

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