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While you were sleeping: Manufacturing sparks optimism

Thursday 2nd September 2010

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Equities on Wall Street and across Europe rallied as manufacturing data in the US and China exceeded expectations and provided some much-needed optimism about the global economic outlook.

In the US, the Institute for Supply Management’s factory index rose to a three-month high of 56.3 from 55.5 in July, the Tempe, Arizona-based group said. Readings greater than 50 signal growth, and the figure was projected to drop.

China’s purchasing managers’ index rose to 51.7 in August from 51.2, a government-backed report showed. A separate measure released by HSBC Holdings and Markit Economics also advanced.

And in Australia, the economy grew at its fastest pace in three years last quarter.

In late trading, the Dow Jones Industrial Average rose 2.27%, the Standard & Poor's 500 Index jumped 2.65% and The Nasdaq Composite Index advanced 2.58%.

“There’s a sigh of relief among the long-only funds and the short sellers are saying that maybe the sell-off is over,”  Michael Binger, a Minneapolis-based fund manager at Thrivent Asset Management, told Bloomberg.

Among the most active stocks on Wall Street were Caterpillar, Burger King Holdings, Apple and Netflix.

Burger King soared 15% on a report that the fast-food chain might get a buyout offer.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, dropped 6.95% to 24.24. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index.

The Stoxx Europe 600 Index jumped 2.7% to 258.19, the largest one-day advance since May 29.

The UK’s FTSE 100 climbed 2.70%, Germany’s DAX gained 2.68% and France’s CAC 40 soared 3.81%.

Among the most active stocks in Europe were Xstrata, Antofagasta and Vivendi.

The risk of default in debt-burdened advanced economies has been overestimated by investors, the International Monetary Fund said.

While improving public finances was a challenging task that would pressure global economic growth, countries had successfully adjusted before and they could do so again, the Fund said in a set of policy papers focusing on the fiscal condition of major developed economies.

"Although the fiscal fundamentals look challenging, current market indicators of default risk seem to reflect some market overreaction," the IMF said.

Meanwhile, US Treasuries declined as the better-than-expected manufacturing data lowered the appeal of fixed-income securities.

The 10-year note yield increased 12 basis points to 2.59% at 1.42pm in New York, according to BGCantor Market Data.

The two-year note yield rose 3 basis points to 0.51%.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.88% to 82.47.

The greenback slid against major currencies as investors found reason to be more optimistic about the global economy.

The euro rose 0.9% to US$1.2798 and the Australian dollar jumped to US$0.9080.

Against the yen, the US dollar rose 0.4% to 84.49 yen. The euro gained 1.3% to 108.12 yen.

"What we've seen is a bit move away from the US dollar," Brendan McGrath, manager of business solutions at Custom House, a Western Union company, in Victoria, British Columbia, told Reuters.

"Risk is back in favour a little bit today, mainly due to the good Australian and Chinese data."

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.78% to 268.89.

Oil jumped more than 3% on the better-than-expected economic data in the US and China, the world's two largest energy consumers.

Also, US government inventory data showed a drop in gasoline and distillate stocks. While the numbers showed a gain in crude inventories, the increase was less than industry data had suggested on Tuesday.

US crude stocks rose 3.43 million barrels in the week to August 27, according to a weekly report from the Energy Information Administration. Distillate stocks fell 739,000 barrels, while stocks of gasoline fell 212,000 million barrels.

Benchmark US crude oil futures for October rose US$2.18 to US$74.10 by 1516 GMT. London ICE Brent crude futures advanced US$1.83 to US$76.47.

Gold slipped as easing concerns over the economic recovery reduced the demand for the perceived safety of the precious metal.

Spot gold fell to US$1,244.55 an ounce at 1457 GMT, from US$1,248.99 late on Tuesday in New York. US gold futures for December delivery fell US$4.00 an ounce to US$1,246.30.

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