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Money Nov 19, 2012

Global stock markets gain on hopes of US avoiding ‘fiscal cliff’

BANGKOK: World stock markets rose on Monday, registering optimism after negotiations late last week between President Barack Obama and leaders of Congress raised hopes the US would avoid its "fiscal cliff" before the end-of-the-year deadline.

Obama met with the top leaders of the House and Senate on Friday to discuss ways to avert a series of automatic tax increases and spending cuts scheduled to take effect January 1 in the absence of intervening action. US lawmakers have said a budget deal before Christmas is possible.

US lawmakers have said a budget deal before Christmas is possible. AFP

Economists have been warning of the consequences if no action is taken. The spending cuts and higher taxes - plus the expiration of extended unemployment benefits - would mean that $671 billion is sliced out of the American economy next year. That's enough to throw the world's biggest economy into a recession.

European stocks were mostly higher in early trading. Britain's FTSE 100 fell 0.4 per cent to 5,654.78. But Germany's DAX gained 1 per cent to 7,0167.87. France's CAC-40 advanced 1 per cent to 3,374.21.

Wall Street was set for a higher open. Dow Jones industrial futures rose 0.3 percent to 12,602. S&P 500 futures gained 0.3 per cent to 1,363.80.

Investors looking for good deals following a global stock market slump that occurred in the aftermath of the US presidential election helped push Asian stock markets higher.

Hong Kong's Hang Seng added 0.5 per cent to 21,262.06 and South Korea's Kospi rose 0.9 per cent to 1,878.10. Australia's S&P/ASX 200 gained 0.6 per cent to 4,361.40. Mainland China's Shanghai Composite Index inched up 0.1 per cent to 2,016.98. The smaller Shenzhen Composite Index rose marginally to 800.84.

"Because Hong Kong dropped for two weeks, maybe there is some bargain hunting,'' said Linus Yip, strategist at First Shanghai Securities in Hong Kong. He said that the budget negotiations in the US are occupying the spotlight in the near term, but the ultimate issue is the state of the global economy.

Investors were particularly concerned by data last week showing US industrial output falling 0.4 per cent in October and the 17-country euro area falling into another recession.

The yen's recent weakness helped boost Japan's Nikkei 225 and its heavy orientation toward exporting companies. The index in Tokyo jumped 1.4 per cent to close at 9,153.20, its highest close since Sept. 19.

A weak yen reduces the cost of Japanese products overseas, and that helps companies whose survival depends on sales beyond their home turf.

Toyota Motor Corp. rose 1.4 per cent. Yamaha Motor Co. gained 1.9 per cent. Canon Inc. surged 4.5 per cent. Nikon Corp. added 4.7 per cent.

Heavy industrial shares also posted gains. South Korean shipbuilder Hyundai Heavy Industries Co. rose 2.8 per cent. Japanese heavy equipment maker Komatsu Ltd. rose 3.4 per cent. Nippon Steel & Sumitomo Metal Corp. gained 3.4 per cent.

Australian surf wear company Billabong International soared 10.1 per cent after news that its US business head Paul Naude was considering a leveraged buyout of the company.

Benchmark oil for December delivery was up 79 cents to $87.71 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.05 to finish at $86.92 per barrel.

In currencies, the euro rose to $1.2781 from $1.2727 late Friday in New York. The dollar was unchanged at 81.22 yen.

AP

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