Date: 07/21/09
World Markets Get Another Lift from U.S. Earnings
By PAN PYLAS
AP Business Writer
LONDON (AP) European stocks closed higher Tuesday after more strong U.S. corporate earnings and indications from U.S. Federal Reserve chairman Ben Bernanke that borrowing costs will remain at record lows for some time to come. But ongoing unease about whether U.S. markets could break through recent highs capped gains on Wall Street.
In Europe, the FTSE 100 index of leading British shares closed up 37.55 points, or 0.9 percent, at 4,481.17 while Germany's DAX rose 63.82 points, or 1.3 percent, to 5,093.97. The CAC-40 in France was 31.95 points, or 1 percent, higher at 3,302.89.
On Wall Street, the Dow Jones industrial average was up 36.36 points, or 0.4 percent, at 8,884.41 around midday New York time, while the broader Standard & Poor's 500 index was rose a minuscule 0.12 point to 951.25.
More upbeat earnings reports from a number of big-name companies on Tuesday added to investors' recent optimism, which has helped stocks around the world rally for the last seven sessions. Analysts noted markets around the world are approaching levels that could trigger a bout of profit-taking.
Coca-Cola Co., the world's largest beverage maker, said its earnings jumped by 43 percent in the second quarter even though sales fell, while chemical maker DuPont Co. and drug company Merck & Co. reported better than expected results despite drops in their quarterly profit.
Since last Monday, most of the world's major indexes have jumped around 8 percent amid hopes that the negative impact on earnings from the recession and the financial crisis has diminished.
"So far, second quarter earnings season has proven to be a net positive for stocks and as a result the (S&P) broad market index has rallied back towards its late-June intraday high of 956 after having threatened to break below key support at 875 after a weaker than expected June employment report," said Steven Ricchiuto, chief economist at Mizuho Securities.
"With only a handful of companies already having reported earnings, the positive surprise ratio is running well above its long-term historical average as a number of consumer discretionary and financial companies beat bottom-up consensus earnings expectations," he added.
The focus over the rest of the week will remain on U.S. earnings — among those to report include financial services and travel company American Express Co. and aircraft maker Boeing Co.
The reporting season also kicks into gear in Europe this week, with pharmaceuticals company GlaxoSmithKline PLC, mobile phone operator Vodafone PLC, Swiss bank Credit Suisse AG and French foods company Danone SA.
Investors also welcomed comments from Fed chairman Ben Bernanke that the central bank had no plans to change course any time soon. Bernanke told lawmakers in his half-yearly assessment of the economy that any steps to reel in extraordinary measures to prop up the U.S. economy — such as pumping trillions of dollars into the financial sector and cutting interest rates to near zero percent — will be far off in the future.
He said the central bank's focus remains "fostering economic recovery" and that borrowing costs will remain at their record lows for "extended period."
Despite the ongoing strength in equity markets, investors remained wary of saying further gains were in the offing as the March to June rally was predicated on similar hopes about the state of the world economy.
"If there is a point where the recent strength could be expected to evaporate then this is it — we are back to levels where investors have consistently thrown in the towel for much of this year," said David Jones, chief market strategist at IG Index.
"If we see a break though these levels then it does suggest there is real conviction that there is yet more upside to come from share prices and the recovery since March starts to look much more sustainable than any we have seen for over a year," he added.
Earlier in Asia, Tokyo's market outperformed the region to hit a two-week high after being closed for a holiday Monday, as investors seemed to shrug off the unfolding shake-up in Japanese national politics.
Japan's Cabinet agreed to dissolve the powerful lower house of parliament, setting the stage for national elections that could topple the country's ruling party.
Tokyo's benchmark Nikkei 225 stock average closed up 256.70 points, or 2.7 percent, to 9,652.02 but Hong Kong's Hang Seng closed down by only 0.64 of a point at 19,501.73.
Elsewhere in Asia, South Korea's Kospi rose 0.7 percent to 1,488.99. Benchmarks in Australia and Taiwan also climbed modestly. China's Shanghai market dropped 1.6 while Singapore was marginally lower.
The rally in stock markets continued to drive up oil prices, which earlier this month dipped below $60 a barrel for the first time in months. Benchmark crude for August delivery traded at $65.21 a barrel, up 65 cents the session.
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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
Copyright 2009 The Associated Press.
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