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While you were sleeping: Manufacturers shifted gears

Tuesday 2nd February 2010

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Shares in Europe and on Wall Street advanced after reports in China, Europe and the US indicated that the global manufacturing sector was rebounding.

The key data came from the US where the Institute of Supply Management said manufacturing surged last month, bolstering the case for expanded growth in the world’s biggest economy.

“The past relationship between the PMI and the overall economy indicates that the PMI for January (58.4%) corresponds to a 5.5% increase in real gross domestic product (GDP) on an annual basis,” the institute said.

January marked the sixth month of expansion in the manufacturing sector and the January reading was the highest since August 2004.

“Both the New Orders and Production Indexes are above 60%, indicating strong current and future performance for manufacturing,” the ISM said. Thirteen of 18 industries reported growth, up from nine in December, “a good indication that the impact of the recovery is expanding”.

At midday, the Dow Jones Industrial Average rose 0.79% and the Standard & Poor’s 500 gained 0.94%. The Nasdaq Composite edged 0.46% higher.

Tom Forester, portfolio manager at Forester Value Fund in Libertyville, Illinois, told Reuters the market was bouncing from an oversold condition and the better-than-expected ISM reading still must translate into real growth.

"Whether this is still inventory replenishment or whether this is hoping for future growth, we'll see," he said. "I think the jury is still out as to whether we actually get the growth."

Among the advancers were Alcoa, up 3.1%, Consol Energy, up 5.1%, Exxon Mobil, up 2%, Ford Motor Co, up 2%. Among the decliners were, down 6.7%, Gannett Co, down 11%, and Macy’s, down 2.3%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 6.1% to 23.12.

In Europe overnight, the Dow Jones Stoxx 600 rose 0.6% to 248.42. Among national benchmarks, the U.K. ’s FTSE 100 rose 1.14%, Germany ’s DAX 30 rose 0.81% and France ’s CAC 40 gained 0.6%.

Some of the biggest movers included Northumbrian Water Group, Ryanair Holdings and Vivendi.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.17% to 79.32.

The U.S. dollar rose 0.6% to 90.86 yen, while the euro advanced 0.4% to US$1.3911, according to Reuters data.

The Reserve Bank of Australia is expected to raise interest rates by 25 basis points this afternoon.

The yield on the 10-year U.S. Treasury note rose 6 basis points to 3.65% at 11:15 a.m. in New York, according to BGCantor Market Data. The 3.375% security due in November 2019 fell 16/32, or US$5 per US$1000 face amount, to 97 24/32.

Thirty-year bond yields rose as much as 9 basis points to 4.58%, the biggest one-day increase since January 13.

The US will announce how much in 3-, 10- and 30-year securities it will sell this quarter on Wednesday.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.62% to 267.24.

U.S. crude for March delivery rose 90 cents to $73.79 a barrel by 11:46 a.m. EST. Prices touched $72.43 on January 29, their lowest level since December 21. London Brent crude rose 87 cents to $72.33.

Spot gold was bid at US$1095.80 a troy ounce at 1548 GMT compared with an earlier high of US$1097.55 and against US$1079.20 late in New York on Friday.

US gold futures for February delivery on the COMEX division of the New York Mercantile Exchange were up US$13.30 at US$1096.30 an ounce.

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