By Agency reporter

Wednesday, 5 Jan 2011

Optimism about the state of the world economy lifted stocks on Tuesday and kept oil prices at a near 27-month peak.

Reuters reported from London on Tuesday, that Wall Street looked set to join in with gains at the open, the dollar was flat and the euro gained.

Monday‘s United States, Chinese and European PMI manufacturing data continued to boost risk sentiment across financial markets along with the ”January effect” that occurs as fund managers dispense with the need to settle end-of-year balances.

Some investors were also looking ahead to Friday‘s US jobs data, expecting to see the world‘s largest economy in an improving state of health.

”People are starting to recognise there is some improvement in the employment picture in the United States. You would expect to see some of the confidence of the (manufacturing) PMI to be reflected in the non-farm payrolls,” an European equities strategist at Evolution Securities, Mr. Philip Isherwood, said.

World stocks as measured by MSCI were up 0.4 a per cent on the day for a one per cent gain in the first two trading days of the year. Emerging market stocks lagged behind but were up 0.3 per cent on the day.

Europe was a main driver with the FTSEurofirst 300 up 1.3 per cent. Part of the gain came from UK stocks catching up after a holiday on Monday and from energy stocks rising on higher oil prices.

Earlier, Japan‘s Nikkei began the year with a 1.7 per cent climb to a seven and a half month closing high.

”Investors may stay cautious before US jobs data this Friday, but they are optimistic overall,” Mr. Hiroichi Nishi, general manager at Nikko Cordial Securities said.

Recent bullishness about the global economy has pushed up the price of crude oil, which hovered near its highest levels in more than two years.

US crude for February rose 27 cents to $91.82 a barrel, close to Monday‘s peak of $92.58, which was the highest intraday price since early October 2008.

”Oil sentiment has turned decidedly bullish, partly driven by unusually cold weather, but more due to an increasingly optimistic consensus view on 2011 economic performance, especially for the US,” JPMorgan analysts said.

The upbeat US manufacturing data lifted the dollar for a while but it later fell back while the euro gained around a third of a per cent to $1.3393.

The single currency had dipped as low as $1.3324 earlier on Tuesday, with some traders citing talk of possible euro-selling flows related to bond redemptions and coupon payments of euro zone debt.

Bund futures shed early gains as commodities and equities continued to benefit from broader signs of an improved economic outlook.

 

Source: Punch