Global Stock Markets Rise on US Fed Stimulus Plan
European share markets have jumped after the US Federal Reserve moved to kick-start recovery by pumping more money into the economy.
In the UK, Germany and France stock markets opened about 1.5% up, following rises on Wall Street and in Asia.
Banks led the markets higher, with RBS up 3.8% and Barclays up 4.5%. Other European banks made similar advances.
It followed the Fed’s decision on Thursday to inject $40bn (£25bn) a month into the US economy.
The plan to buy up mortgage debt will continue until further notice, the Fed said. The central bank also kept interest rates at below 0.25%.
The aim is to reduce long-term borrowing costs for firms and households. On Wall Street on Thursday, the Dow Jones index closed up 1.55%. On Friday, Hong Kong’s Hang Seng added 2.7% and Japan’s Nikkei 225 rose 1.8%.
Investors hope the Fed’s measures will revive growth in the US economy, the world’s biggest and a key market for Asian and European exports.
The Fed’s promise that the quantitative easing programme was open-ended and would continue until the US economy showed signs of recovery has bolstered confidence, said analysts.
“They’re saying that the punch bowl, the fuel for the economy, isn’t going away – it’s going to be here as long as you need it,” said Tony Fratto, managing partner at Hamilton Place Strategies, a policy consulting firm.
In a research note from HSBC, analysts said that the Fed “is trying to convey to financial market participants that they can count on low interest rates and accommodative monetary policy for a long time and not to expect a reversal of policy in reaction to modest improvement in GDP growth or in the unemployment rate”.
Yields on Spanish and Italian bonds also fell, easing pressure on borrowing costs for the two heavily-indebted nations.
On Friday, Italy’s 10-year borrowing rate fell under the 5% mark for the first time since March.
“With a few obstacles removed this week, the context should be even more favorable for bonds of the most fragile countries,” Credit Agricole analysts said in a commentary.
However, the depth of Spain’s problems were underlined on Friday with official data showing that public debt has reached a record 75.9% of gross domestic product, fuelling doubts over the country’s ability to manage its finances.
There was fresh speculation in the European media that the European Central Bank and International Monetary Fund may discuss a bailout for Spain during a meeting of finance ministers due to take place in Cyprus later on Friday.
However, an ECB spokesman rejected the reports, saying: “The reporting is unfounded. No negotiations are ongoing.”
There are also suggestions that the meeting may discuss whether to allow Greece more time to repay its international loans.
There have been growing fears about the global economy, with a weak recovery in the US and the continuing debt crisis in the eurozone.
US unemployment, which has topped 8% for three years, is likely to be a key battleground in the upcoming presidential elections.
The slowdown in China’s economy, the world’s second-largest and one of its biggest drivers of growth since the global financial crisis, has fanned those fears.
Prompted by these concerns, policymakers in these regions have been taking measures to try to spur a fresh wave of growth.
The Federal Reserve’s announcement came days after the European Central Bank (ECB) announced its latest plan.
Last week, the ECB said that it would buy bonds from the bloc’s debt-ridden nations in an attempt to bring down their borrowing costs.
Meanwhile, China has cut its interest rates twice since June to bring down borrowing costs for businesses and consumers. Beijing has also lowered the amount of money that banks need to keep in reserve three times in the past few months to encourage further lending.
