World stocks recovered more ground Wednesday as investors rattled by a run of heavy losses found solace in front of the Federal Reserve to keep interest rates near zero for two years. She also welcomed data showing that China’s export growth accelerated in July, calming fears that weak demand from Europe and the United States, the world’s second largest economy, hit. The MSCI all country world index, as much as 20 percent has fallen from a high in May, rose 1 percent. Emerging market shares were more than 2 percent.
European shares was around half a percent in choppy trade, adding to its 1.2 percent rise on Tuesday.
Investor sentiment was reinforced by the announcement of the Fed’s unprecedented that it was probably keep interest rates at extraordinarily low levels until mid-2013.
The movement was both ways, however. It gives a message to the markets that the Fed is willing to do things above water, but also recognizes how much the U.S. economy has weakened.
“Low interest rates support equity markets, but it’s just a relief rally. There are too many uncertainties out there, “Louise Cooper, market analyst at BGC Partners, said.
“Markets are so severely beaten every piece of good news is an excuse to rally. Yes, markets are not cheap, but we were years and years of low growth to repay our debts.”
Goldman Sachs said third round of asset buying quantitative easing by the Federal Reserve was likely following statement Tuesday.
“We are now seeing a bigger-than-even chance that (it) will quantitative easing resume later this year or early 2012. We have our call changed because (the) statement suggests that the committee’s reaction function to incoming economic news is more dovish than we had previously thought, “Jan Hatzius, chief economist at the firm, said in a note.
DOLLAR FALLS EURO VULNERABLE
The dollar fell three-quarters of a percent against major currencies as the prospects for a minimum U.S. dollar interest-driven buyers elsewhere.
The euro was off the recent lows but still sensitive to concerns about the eurozone is now a broad-based debt crisis, despite moving from the European Central Bank to a portion of the pressure by buying the peripheral debt relief.
“The outlook is range bound for the euro / dollar, with both currencies are struggling with debt problems,” said Ankita Dudani, currency strategist at RBS.
The central bank of Switzerland, meanwhile, said the measures to expand the force to fight against the Swiss franc. Investors are pouring into the currency as a safe haven in recent market and economic weakness.
German government bonds jumped, tracking movements in U.S. Treasuries overnight after a move by the Fed.
“There is a fear that the outlook is very bad if they commit to 2013,” one bond trader said.
source: reuters
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