By Pedro Nicolaci da Costa
NEW YORK, Jan 2 (Reuters) - World stock markets started the
year on positive note on Friday, with U.S. and European markets
racking up solid gains as investors hoped aggressive government
policies would steady a wobbly global economy.
The strides in equities were a sign of just how browbeaten
investors had been in a year that saw the worst performance
since the 1930s. Friday's bounce came despite news of a
worldwide contraction in the world manufacturing sector.
Investors seemed to set aside the bad news, pushing the Dow
Jones industrial average <> up 173.16 points, or 1.98
percent. The FTSE Eurofirst jumped 2.62 percent, with investors
evidently hoping that with 2008 so bad, 2009 could only be
better.
"We're seeing some New Year optimism," said Andre Bakhos,
president of Princeton Financial Group, in Princeton, New
Jersey. Global stocks as measured by the MSCI world index
<.MIWD00000PUS> were up 2 percent.
Yet the economic backdrop was hardly comforting. Factories
in China, India and Eastern Europe joined the United States and
other developed countries in slashing output and jobs in
December, another sign recession is spreading to emerging
markets.
U.S. manufacturers had their worst December since 1980, and
new orders fell to a record low, according to the Institute for
Supply Management. The downturn was even more severe than
already pessimistic economist forecasts.
In Europe, the group's index hit a record low. This pointed
to a deepening recession on the continent and sent investors
back into dollars and out of the euro.
"It casts an even darker shadow over the state of the euro
zone economy," said Bank of America economist Gilles Moec.
"We think it is consistent with a major contraction in GDP
both in the fourth quarter of 2008 and the first quarter of
2009 -- probably something like a contraction of a full
percentage point in both quarters."
The euro <EUR=> was down 0.6 percent against the dollar at
$1.3909, having earlier hit a session low of $1.3841.
Given the weakness in the economy, analysts expect any
stimulus package that emerges from President-elect Barack
Obama's administration to be quite large -- perhaps as big as
$1 trillion. Still, few expect the benefits to be immediate. At
best, the government's efforts will prevent a deeper downturn,
economists say.
While the going was good for stocks, U.S. Treasury debt
prices dipped in a sign investors' aversion to risk was easing
a bit after a year in which $14 trillion was wiped off world
stock markets.
Benchmark 10-year <US10YT=RR> notes were down 22/32 and
yielding 2.29 percent, up 7 basis points from Wednesday but
still not far above a 50-year low of 2.04 percent set in
December.
The oil markets, meanwhile, were back on the upswing,
powered by the conflict between Israelis and Palestinians and
Russia's vow to cut off gas supplies to neighboring Ukraine.
A barrel of crude oil was trading up $1.41 at $46.04. Oil
prices fell 54 percent as a whole in 2008, from $95.98 to
$44.60 a barrel at the close on Dec. 31, with the spike to
$147.27 set on July 11 in between. As demand dissolved in the
wake of a global economic recession, prices were hammered in
the closing months of the year.
(Reporting by Pedro Nicolaci da Costa; Editing by Dan
Grebler)
