Monday May 4, 07:49 PM
China economic boost helps stock market rally
PARIS (AFP) - World stock markets advanced on Monday after encouraging signals from the Chinese economy as well as news of Fiat (Milan: F.MI - news) 's plans to create a new global auto industry giant despite the economic crisis.
On Wall Street, the Dow Jones Industrial Average climbed 2.24 percent and the tech-heavy Nasdaq (NASDAQ: news) index was up 1.64 percent in mid-day trading.
Paris closed up 2.47 percent and Frankfurt gained 2.89 percent, while the London Stock Exchange (LSE: LSE.L - news) was closed for a public holiday in Britain.
Tokyo was also closed for a holiday but Hong Kong soared 5.54 percent and Shanghai added 3.32 percent after a report from a government think tank put China's second-quarter economic growth at seven percent from a year earlier.
The CLSA China Purchasing Managers Index, or PMI, a closely watched indicator in the world's third-largest economy, also rose sharply to 50.1 in April from 44.8 the previous month. It was the first expansion in nine months.
Stocks were given an added boost by easing fears of a global pandemic of the swine flu virus, which rattled financial markets last week and had threatened a possible further delay in any recovery for the world economy.
"People are treating swine flu as a non-event," said Goh Mou Lih, head of research at Westcomb Securities in Singapore.
"And with the better US consumer confidence data, the market's perception now is that the economy is going to turn around," he said.
In Hong Kong, Patrick Yiu, associate director at CASH Asset Management, told Dow Jones Newswires: "The whole investor theme is about expectations of an economic recovery, not only in China, but also globally."
That confidence carried through to Wall Street, where analysts at Charles Schwab & Co. said the positive data from China was helping "further the argument that the worst of the global recession may be in the rearview mirror."
Todd Salamone at Schaeffer's Investment Research said: "We are seeing evidence... that suggests the big money players are returning to the stock market. These players are a huge source of fuel."
Investors remained concerned however about the so-called stress tests of the top 19 banks in the United States expected later in the week, which could reveal that some banks may need further shoring up of their capital base.
But good news from the troubled real estate sector helped boost US stocks.
One report showed pending US home sales rose 3.2 percent in March after a 2.0 percent increase in February. A separate report showed construction spending increased 0.3 percent in March after five monthly declines.
Another factor in the global rally was an announcement by Fiat that it intends to take over General Motors (NYSE: GM - news) ' ailing German unit Opel to create a global industry giant following its tie-up with Chrysler announced last week.
In an interview with the Financial Times, Fiat boss Sergio Marchionne outlined plans to build the world's second biggest auto company after Japan's Toyota and said a deal with Opel would be "a marriage made in heaven."
Shares were given an added boost by the Purchasing Managers Index for the 16-nation eurozone, which rose in April to its highest level in six months.
The new PMI, which measures business activity in the eurozone, was at 36.8 points -- still below a 50-point threshold indicating growth.
There was some bad news from Europe however with the European Commission forecasting that the EU and eurozone economies would contract 4.0 percent in 2009 and would continue to shrink in 2010, dashing hopes of a quick recovery.
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