Economic optimism fuels global equity rally

Equity markets across the globe made gains yesterday amid growing confidence that the US economy was stabilising and that growth in other countries was bouncing back more quickly than expected.

Manufacturing in China expanded for the first time in nine months, according to a survey of purchasing managers. A survey in Europe showed continued contraction but a slower pace of declines.

March housing data in the US offered further encouragement that the worst might be over.

“The 3.2 per cent month-on-month bounce in the pending home sales index was the second increase in a row and supports other evidence that, after nearly three years of freefall, housing activity may have found a floor,” said analysts at ING.

Japanese and British markets were closed for holidays. Sentiment yesterday was strong across Asian equity markets, with optimism reflected in both rising share prices and in the strength of commodities. Many indices reached seven-month highs.

The mood was further improved after the US said swine flu had milder symptoms than previous influenza outbreaks.

The recovery hopes were particularly noticeable in commodity sectors, with the prices of raw materials and energy particularly sensitive to any shifts in global production.

As crude oil rose to more than $53 a barrel, energy and commodity stocks rose.

This was particularly evident in Australia, where stocks rose 2.5 per cent. Miners were further helped by a rise in the price of copper to its highest level in two weeks.

Elsewhere in the region, Hong Kong jumped 5.5 per cent, Shanghai 3.3 per cent and Taipei 5.6 per cent.

In India, the BSE Sensex index enjoyed its best one-day gain in six months.

Russia and Brazil also made gains, reflecting their reliance on commodity- related stocks. European stocks echoed the performance in Asia. The FTSE Eurofirst 300 closed up 1.6 per cent at 842.70.

In the US, stocks were helped by hopes that banks would survive the government's stress tests, the results of which are due on Thursday.

At midday in New York, the S&P 500 index was up 2 per cent.

Analysts at Barclays Capital, which adopted a bullish stance on US equities in April, said they were unsure how much more upside was possible in the US market.

“The breadth of the rally, the sectors that are driving it and the improvement across every major fixed- income category all imply that this is the real thing – the end of the recession and the rally in anticipation of the recovery,” said Barclays analyst Barry Knapp.

“The magnitude of the equity advance makes it the sixth largest recovery rally since the 1870s, and equity valuations were not cheap to begin with. In other words, stocks appear to have discounted the bulk of the stabilisation, with limited upside ahead.”