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While you were sleeping: Stocks, commodities surge

Friday 5th November 2010

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Equities on Wall Street and in Europe climbed as investors gained confidence from the Federal Reserve’s plan to buy US$600 billion of bonds with new money to bolster the pace of economic recovery. Oil and gold jumped as the US currency fell.

In mid afternoon trading, the Dow Jones industrial average rose 1.56%, the Standard & Poor's 500 Index gained 1.44% and the Nasdaq Composite Index advanced 1.14%.

With the Fed’s help, investors piled into commodity-related equities such as Freeport McMoRan Copper and Gold Inc because of expectations demand for the raw materials will pick up with the pace of economic growth.

Weakness in the US currency also helped demand for raw materials. The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose to the highest level in two years. It recently traded 2.3% higher at 312.10.

The Dollar Index, which measures its value against a basket of currencies, declined 0.46% to 75.95.

The Fed's move is aimed at "trying to get everybody into those risk assets," Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, told Reuters.

"The game [plan] short term here appears to be very easy: You just buy those risky assets."

European Central Bank President Jean-Claude Trichet said he did not think the Fed was actively trying to weaken the greenback. Trichet’s comment came amid rising criticism from emerging economic powerhouses trying to contain a huge influx of speculative money.  

Both the ECB and the Bank of England today held interest rates steady.

The single European currency traded at US$1.4225 by 1600 GMT today.

Against the Japanese yen, the greenback was down 0.43% at 80.69 from a previous session close of 81.040.

In Europe, the Stoxx 600 rose 1.6% to 270.83,  its highest level in nearly seven months.

BHP Billiton soared 6.6% to a record in London after Canada’s veto of its US$40 billion hostile takeover for Potash Corp of Saskatchewan. Potash Corp dropped 3.5% in Toronto.

Ireland is planning to cut spending and increase taxes next year worth 6 billion euros, in a desperate effort to convince investors it is not on the verge of financial meltdown.

Oil gained, with US crude for December delivery was traded 2% higher at US$86.34 by 1610 GMT.

ICE December Brent rose 1.8% to US$87.93.

"The Fed stimulus will continue to draw investors/traders to oil as well as most other raw materials in response to the weak [US] dollar and fears of inflation starting to materialise down the road," Dominick Chirichella, senior partner at Energy Management Institute in New York, told Reuters.

Spot gold rose as much as 2.7% to within a few dollars of its recent record of US$1,387.10. It traded at US$1,376.90 an ounce at 1600 GMT, against US$1,347.15 late in New York on Wednesday.

"The relationship between the [US] dollar and gold remains a very strong one and the recent move post-QE is a dollar-related move more than anything else," RBS commodities strategist Daniel Major, told Reuters.

"It's pretty constructive on a near-term basis, provided the market continues to trade gold very closely to moves in the currency."

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