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World stocks mostly higher, euro steadies

Thursday, November 25, 2010 - 11:13am

LONDON – World stocks mostly rose Thursday following an upbeat finish on Wall Street before the Thanksgiving break in the U.S., but the euro failed to get much of a boost amid concerns that Europe's debt crisis could soon embroil Portugal or, more dangerously, Spain.

In Europe, the FTSE 100 index of leading British shares was up 20.46 points, or 0.4 percent, at 5,677.56 while Germany's DAX rose 17.92 points, or 0.3 percent, to 6,841.72. The CAC-40 in France was 4.22 points, or 0.1 percent, lower at 3,743.39.

After a torrid start to the week, when worries about Europe's debt crisis became more acute following Ireland's request for a massive financial bailout and amid mounting tensions on the Korean peninsula, stocks have recovered their poise. The boost came mostly from figures Wednesday showing a sharp drop in weekly U.S. jobless claims and encouraging consumer confidence figures ahead of the crucial Christmas shopping season.

The U.S. economic data confirmed that the economic recovery continues and may actually be picking up pace.

However, investors remain cautious about whether the improvement will do much to get the U.S. unemployment rate down from near 10 percent. That is a key priority for both the Obama administration and the Federal Reserve, which earlier this month announced that it was pumping up to $600 billion into the U.S. economy over the coming months to help get unemployment down and prevent a dangerous bout of deflation — that is, falling prices.

Investors also remain watchful of developments in Europe's debt crisis, which has already forced both Greece and Ireland to tap their partners in the eurozone and the International Monetary Fund for bailout money.

On Wednesday, the Irish government unveiled another euro15 billion worth of austerity measures in return for an estimated euro85 billion ($113 billion) financial lifeline.

It's done little to shore up confidence in the bond markets as investors continue to fret about the country's political instability — on Tuesday, Ireland's premier Brian Cowen bowed to the inevitable and confirmed that the country will be going to the polls early next year if the 2011 budget, scheduled for Dec. 7, is passed.

"Complicating matters further, the leading opposition party signaled that they will re-examine any IMF-EU deal if they come to power in an early 2011 general election," said Carl Campus, an analyst at BMO Capital Markets.

As a result the euro is finding it difficult to garner much lost ground despite the general rise in risk appetite since the U.S. jobless claims figures.

The improvement in risk appetite would normally give the euro a boost against the dollar — when investors have a greater interest in riskier investments, stocks usually get a boost, while the dollar loses some of its safe haven shine.

By mid afternoon London time, the euro was up 0.1 percent on the day at $1.3340.

On Wednesday, the euro slid to a two-month low of $1.3282, over five cents down since Monday's peak of $1.3786.

The real big concern in the markets, though, remains whether Portugal or Spain will be dragged into the mire.

The prevailing view in the markets is that Europe may be able to support Portugal but that a bailout of Spain would be one step too far and that the euro project itself could be in jeopardy. Spain accounts for around 10 percent of the eurozone economy, in contrast with the other three countries, which account for around 2 percent each.

Bond yields in the so-called periphery countries continued to edge up Thursday, in a further sign that the eurozone's debt crisis is a long way from being solved. The yield on Spain's 10-year bonds was up another 0.13 percentage point at 5.19 percent, while Portugal's was steady at 7 percent.

Investors are also keeping a close watch on developments in east Asia following Tuesdays' exchange of artillery between North Korea and South Korea.

"Whilst Seoul may have shown restraint over recent events, there's still the uncertainty of what Pyongyang could do next to bear in mind," said Ben Potter, research analyst at IG Markets.

Asian markets ended mostly higher earlier.

Japan's Nikkei 225 stock average rose 0.5 percent to 10,079.76, while Hong Kong's Hang Seng index added 0.1 percent to 23,054.68. South Korea's Kospi index gained 0.1 percent to 1,927.68. Australia's S&P/ASX was up 0.2 percent at 4,593.4.

Chinese shares closed higher on Thursday, tracking overseas gains, buoyed by property and oil refiners. The benchmark Shanghai Composite Index gained 1.3 percent to 2,898.26 while the Shenzhen Composite Index for China's smaller, second exchange edged 0.3 percent higher to 1,337.83.

Benchmark oil for January delivery was up 43 cents to $84.29 a barrel in electronic trading on the New York Mercantile Exchange.

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