European stocks extend gains

May 20, 2009 8:22:43 AM PDT
European stock markets extended gains Wednesday as Wall Street rallied on the open after Bank of America Corp. said it had raised $13.5 billion in much-needed capital. Germany's DAX rose 55.31 points, or 1.1 percent, to 5,014.93 while France's CAC-40 was up 15.73 points, or 0.5 percent, at 3,290.69. The FTSE 100 index of leading British shares recouped most of its earlier losses and was trading down only 8.46 points, or 0.2 percent, at 4473.79.

In the U.S., the Dow Jones industrial average was 102.50 points, or 1.2 percent, higher at 8,577.35 soon after the open while the broader Standard & Poor's 500 index rose 14.62 points, or 1.6 percent, to 922.75. The gains in the U.S. were more or less double those anticipated by futures markets.

Sentiment among investors was buoyed by the news that Bank of America had raised $13.5 billion through a share sale just two weeks after the U.S. regulatory authorities said it needed a further $34 billion to protect itself from losses in case of a sharper economic downturn.

Investors were also closely monitoring testimony from U.S. Treasury Secretary Geithner before a Senate committee over the White House's plan to steady the banking system.

In prepared remarks, Geithner said U.S financial institutions will likely repay $25 billion of their government rescue funds over the coming year. With that amount, Geithner said the government should have nearly $124 billion remaining in the $700 financial bailout fund that Congress approved last fall.

Earlier, Asian markets were mixed with Japan's Nikkei 225 stock average edging up 54.35 points, or 0.6 percent, at the close to 9,344.64, but Hong Kong's Hang Seng ending down 68.19 points, or 0.4 percent, to 17,475.84.

Japan's gains came despite confirmation that its economy - the world's second biggest - shrank at a quarterly rate of 4 percent as exports plunged and companies slashed production. That was the worst performance since records began in 1955.

Stephen Lewis, an analyst at Monument Securities, said the Japanese figures were a useful reminder to the more bullish investors in the markets that the global economy is still in the doldrums and likely to remain there for a while yet.

"Some of the bolder spirits in those markets believe the recession is all but over," he said. "However, the evidence from recent economic data has been far from compelling in its support for such a bright scenario."

The trigger for the gains over the last couple of months has been some better than expected economic news around the world, particularly from the U.S - the Standard & Poor's 500 index in the U.S. has risen around 30 percent from its lows.

However, downbeat U.S. retail sales data last week reined in some investors' hopes and stocks have since generally traded sideways.

Analysts said it has been noticeable that any corrections since the rally began in mid-March have been relatively mild, suggesting there are still enough investors out there willing to buy into dips.

Philip Manduca, head of investment at ECU Group, reckons the S&P will overshoot to the upside, possibly up to 950 before the summer ends "as euphoria accentuates and the TV channels trumpet a new bull market."

However, Manduca thinks the S&P will end the year near its fair value of closer to 750 to 850 "but not before all the bears get heavily squeezed into taking a loss and the new bulls get caught at the top."

Elsewhere in Asia, South Korea's market added 0.5 percent to 1,435.70 while Shanghai's index declined 0.9 percent. India's market shed nearly 2 percent after soaring earlier this week after national elections settled the country's near-term political future. Markets in Taiwan, Australia and Singapore were marginally higher.

Oil prices pushed further above $60 a barrel Wednesday, with benchmark crude for July delivery up $1.25 at $61.35 a barrel.

The dollar fell to 95.32 yen from 96.09 yen, while the euro spiked to $1.3791 from $1.3645 earlier.