While you were sleeping: Stocks rally on China stimulus talk

Thursday 5th March 2009

Stocks rallied on Wall Street and in Europe amid speculation Chinese Premier Wen Jiabao will announce further measures to underpin growth in the world's No. 3 economy.

Wen is due to give a state of the nation speech today, according to a former official, Li Deshui, including "a new stimulus package." Further support to the Chinese economy, the world's largest holder of foreign exchange reserves, would be in addition to some US$580 billion of spending already pledged.

Also helping stocks to rise, the Obama administration unveiled a US$75 billion foreclosure relief plan, giving a lifeline to homeowners who owe more than their houses are worth. First American CoreLogic estimated one in five homeowners owe more on in mortgage debt than their property's value.

The Dow Jones Industrial Average climbed 2.4% to 6884.8 and the Standard & Poor's 500 Index rose 2.4% to 713.23. The tech-laden Nasdaq Composite advanced 2.4% to 1352.44.

Caterpillar, which makes earthmoving equipment, jumped 15% to US$25.74, leading gains on the Dow. Aluminium producer Alcoa jumped 14% to US$6.32, as commodity prices rallied on talk of China's spending plans. Oil producer Chevron climbed 4.1% to US$60.09 as the price of oil rebounded. General Motors rose 9.6% to US$2.18.

Bank shares weakened. JPMorgan Chase slipped 6.4% to US$19.66 and Citigroup declined 4.1% to US$1.17. General Electric fell 3.9% to US$6.74, though it recovered from an almost two-decade low after hosing down speculation that it needs to raise capital for its finance unit.

The Federal Reserve's regional survey showed the US economic slump worsened in the past two months as consumers stopped spending and manufacturers cut output. The survey, known as the Beige Book, showed that out of 12 Fed districts, 10 reported weaker conditions in their regions with no sign of a pick-up until late this year.

The US dollar and the yen weakened as the prospects of increased fiscal aid from China helped stoke investors risk appetite, paring demand for the currencies as a safe haven.

The dollar fell to $1.2644 per euro from $1.2561. The yen slid to 99.19 per dollar from 98.16, the closest it has got to 100 per dollar in three months. The yen weakened to 125.25 per euro from 123.31.

In Europe, the Dow Jones Stoxx 600 Index advanced 3.9% to 167.62. The FTSE 100 Index jumped 3.8% to 3645.87 as BHP Billiton, the world's biggest mining company, soared 13% on prospects of continued demand for raw materials in China. Xstrata climbed 15%.

Kazakhymys Plc, a copper producer in Kazakhstan, surged 20%, leading the FTSE 100 higher.

Germany's DAX 30 jumped 5.4%, led by an 11% gain for Salzgitter, a holding company for a group of steel technology businesses. France's CAC 40 climbed 4.7% to 2675.68, led by a 12% gain in ArcelorMittal and a 12% gain for Alstom.

Copper rose to a three-month high on optimism, the biggest buyer of the metal, will continue to suck in the raw material.

Copper futures for May delivery climbed 5.6% to US$1.694 a pound on the New York Mercantile Exchange.

Crude oil rose to a five-week high on China optimism. Crude for April delivery rose 8.7% to US$45.29 a barrel. Gold for April delivery rose 90 cents to US$914.50 an ounce in New York.

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