London: Stocks rallied from London to Shanghai and the dollar fell as Dubai said half of its debts are stable and Chinese manufacturing grew at the fastest pace in five years. The yen dropped the most in seven weeks against the dollar, while gold reached a record.
Trigger factor: Investors at the Dubai Financial Market on Tuesday. The Dubai Financial Market General Index sank for a second straight day, falling 5.6% to the lowest level since August. Mosab Omar / Reuters
The MSCI World Index advanced 1% at 11.12am in London and futures on the Standard and Poor’s (S&P) 500 Index added 0.7%. The dollar weakened against 14 of the 16 most-traded currencies. The yen sank as much as 1.3% versus the greenback on speculation the Bank of Japan will try to limit gains even after keeping interest rates unchanged at an emergency meeting today. Gold rose to $1,200.50 (Rs55,823.25) an ounce.
Dubai is in talks with its lenders to restructure $26 billion of debt, easing concern that a default would boost the $1.7 trillion financial companies around the world have written down as the credit crisis impaired the value of their assets. An HSBC Holdings Plc index showed China’s manufacturing increased last month. US manufacturing probably expanded for a fourth consecutive month in November, according to the median forecast of economists surveyed by Bloomberg.
The fallout from the Dubai situation and the overall contagion effect should be both short-lived and quite limited, wrote Suki Mann, a credit strategist at Societe Generale SA in London, in a research note. We are close to the end of a remarkable year for risky assets, and this is probably the last chance for fast money to make a quick turn.
Europe’s Dow Jones Stoxx 600 Index climbed 1.9%, its biggest gain in more than a week. HSBC, the region’s largest bank, added 2.2% in London as concern eased that losses from a possible default by Dubai World will spread. BHP Billiton Ltd led basic-resources companies higher, gaining 1.9%.
Asian stocks rose, lifting the MSCI Asia Pacific Index 1.4% to a five-week high. Nissan Motor Co., which gets 35% of its revenue from North America, added 3% in Tokyo as the yen slumped against the dollar. Baoshan Iron and Steel Co. surged 7.8% in Shanghai on speculation steel demand in China will increase.
The advance in US stock-index futures indicated the S&P 500 may extend November’s 5.7% rally. The Institute for Supply Management’s manufacturing index slipped to 55 from October’s three-year high of 55.7, according to the median forecast of 72 economists surveyed by Bloomberg. The report is due at 10am New York time.
Dubai’s announcement 25 November that it would seek to delay debt repayments stoked concern that a potential default would set back the global financial system’s recovery from the recession. It triggered the biggest stock market slump in three months in Asia and Europe’s worst rout since April as the debt request risked adding to banks’ losses.
Qatar’s benchmark equity index fell 8.3% on the nation’s first trading day since Dubai’s announcement, leading declines across the Persian Gulf. The Dubai Financial Market General Index sank for a second day, falling 5.6% to the lowest level since August.
Credit-default swaps protecting Dubai government debt fell 44.5 basis points to 525.5, after more than doubling last week, according to CMA DataVision prices. Contracts on state-controlled company DP World dropped 54 basis points to 589.5, CMA prices show. A decline signals an improvement in perceptions of credit quality.
The extra yield investors demand to own emerging-market debt over US treasuries fell 8 basis points, the most in three weeks, to 3.21 percentage points, according to JPMorgan Chase and Co.’s EMBI+ Index. The MSCI Emerging Markets Index of equities climbed 1.2%, while 19 of 20 major developing-nation currencies tracked by Bloomberg strengthened against the dollar.
Treasuries led declines in government bonds, with the yield on the 10-year Treasury note rising 3 basis points to 3.22%, the first increase in six days.
The yield on the German bund climbed 1 basis point to 3.16%. Copper led gains in industrial metals, advancing 1.1% to $7,005 a tonne on the London Metal Exchange. Aluminium, nickel and zinc also rose. Gold futures jumped as much as 1.5% in New York and silver added 2.2% to $18.72 an ounce.
Australia’s dollar rose, strengthening 1.3% versus the yen and 0.7% against the US currency, as the nation’s central bank increased interest rates for an unprecedented third consecutive month, citing the pace of Asia’s economic recovery.