Global stocks edge up amid hopes U.S. will hold on to stimulus program

KUALA LUMPUR, Malaysia – Global stock markets edged up Monday amid hopes that the U.S. Federal Reserve will put off plans to wind down its stimulus program.

Disappointing reports about the U.S. economy weighed on Wall Street stocks Friday, as did concerns that the Federal Reserve could announce plans to cut back its stimulus program later in the week. Markets have been spooked since late May when Fed chairman Ben Bernanke said the U.S. central bank might pull back on its aggressive support for the U.S. economy if indicators, especially hiring, improve. Policymakers at the Fed will start a two-day meeting Tuesday to discuss the central bank’s next steps.

In early European trading, Britain’s FTSE 100 rose 0.6 per cent to 6,343.06. Germany’s DAX advanced 1.2 per cent to 8,222.45. France’s CAC-40 rose 1.2 per cent to 3,849.69. Wall Street also appeared set for early gains, with Dow Jones industrial futures rising 0.8 per cent to 15,105. S&P 500 futures added 0.8 per cent to 1,631.70.

Evan Lucas, market strategist at IG in Melbourne, Australia, said he doesn’t think the Fed is ready to harness in its stimulus program just yet.

“It’s whether or not Bernanke blinks, but I don’t think so,” Lucas said. “The most likely outcome is the Fed will reconfirm that unemployment remains stubbornly high, several key indictors continue to fluctuate and the U.S. economy is still not holding its own.”

The Fed buys $85 billion in bonds every month as part of a campaign to keep interest rates extremely low. The aim is to encourage borrowing, spending and investing. Some investors worry that long-term interest rates could spike when the Fed pulls back, raising borrowing costs and threatening the economic recovery. Higher yields for government bonds have already started pushing mortgage rates up.

In Asia, Tokyo’s Nikkei 225, the regional heavyweight, jumped 2.7 per cent to close at 13,033.12, extending Friday’s 2.4 per cent gain. Hong Kong’s Hang Seng added 1.2 per cent to 21,225.90 while Australia’s S&P/ASX 200 advanced 0.7 per cent to 4,825.90. South Korea’s Kospi shed 0.3 per cent to 1,883.10. Benchmarks in Singapore and Taiwan also rose. Mainland Chinese stocks were mixed.

Credit Agricole CIB in a report said no changes are expected in the Fed’s policies but Bernanke’s ability to communicate effectively the Fed’s strategy over tapering is crucial to determine whether market volatility persists or lessens.

Investors expect a reduction in the Fed’s asset purchases later this year. Such stimulus has been a key driver of the rally in stock markets and other asset prices. Markets are also looking to this week’s policy meeting for clues on the scale and timing of any reductions.

Benchmark oil for July delivery rose 29 cents to $98.14 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.16 to close at $97.85 a barrel on the Nymex on Friday.

In currencies, the euro rose to $1.3344 from $1.3340 late Friday in New York. The dollar rose to 94.87 yen from 94.34 yen.