World markets up modestly as focus turns to Fed

LONDON -- World markets rose modestly Tuesday as investors awaited the outcome of the latest U.S. Federal Reserve policy meeting and signs of a pickup in corporate dealmaking reinforced views that the global economy is recovering.

Amid very light trading volumes in Europe, the FTSE 100 index of leading British shares was up 8.05 points, or 0.2 percent, at 4,730.25 while Germany's DAX rose 9.28 points, or 0.2 percent, to 5,427.40. The CAC-40 in France was 19.84 points, or 0.6 percent, higher at 3,524.38.

The economic and corporate news flow out of Europe was light, though the decision by British insurance and pensions provider Friends Provident PLC to back a 1.86 billion pound ($3.06 billion) offer from buyout firm Resolution Ltd. has stoked hopes that mergers and acquisitions may be coming back into fashion.

Dealmaking often increases during economic recovery phases as companies look to pick up cheap assets in the hope that profits will soon be on the up -- stocks then often start trading with a takeover premium.

Philip Gillet, a sales trader at IG Index, said the deal adds "further weight to the arguments that a return to normality for financial markets remains on the cards."

One of the main points of interest in the markets this week is the latest monetary policy decision from the U.S. Federal Reserve on Wednesday. Though no change in interest rates is expected, investors will be looking to see if the Fed sounds a note of cautious optimism in its accompanying statement and whether it has plans to expand its asset-purchasing program now that funds are running dry.

The state of U.S. retailing will also be under the microscope. As well as official government U.S. retail sales data, investors will have a raft of earnings from the likes of Wal-Mart Stores Inc., JC Penney Corp. and Macy's Inc. to pore through.

Investors are fully aware that without the support of the U.S. consumer, which accounts for around 70 percent of the U.S. economy and 20 percent of the global economy, any recovery will soon fizzle out.

After modest losses on Monday, Wall Street was poised to open slightly higher later. Dow futures were up 10 points, or 0.1 percent, at 9,330 while the broader Standard & Poor's 500 futures rose 1.3 point, or 0.1 percent, to 1,008.80.

Both key U.S. markets ended last week at ten-month highs after government figures showed the number of Americans losing their jobs in July was far less than anticipated and the unemployment rate unexpectedly fell.

Hopes that the U.S. economy will recover sooner than anticipated from its deepest recession since World War 2 has helped stocks around the world rally hard over the last month or so, sending major indexes to 2009 highs. Stocks usually rally around 6-9 months before actual recovery emerges in the official data.

Earlier in Asia, markets inched higher on signs that China's stimulus measures were helping shield its economy from the global slump and as governments issued cautious outlooks about the recovery.

Hong Kong's Hang Seng closed up 144.69 points, or 0.7 percent, at 21,074.21 while Shanghai's benchmark added 0.5 percent to 3,264.73. Japan's Nikkei 225 stock average rose 61.20 points, or 0.6 percent, to 10,585.46 as the Bank of Japan said there were signs the downturn was bottoming out but warned about growing joblessness.

South Korea's central bank was similarly cautious, saying the road to stronger growth was uncertain because recoveries in other major economies could be delayed. The country's benchmark Kospi added 0.2 percent to 1,579.21.

In Singapore, the government revised slightly higher its economic growth in the second quarter but warned U.S. consumption must pick up to sustain a recovery. The city-state's main stock index climbed 2.1 percent after being closed for a national holiday Monday.

Elsewhere, Australia's benchmark rose 0.7 percent, helped by a survey showing confidence hit its highest level in almost two years in July. Indexes in Taiwan and India also gained.

Oil prices remained below $71 a barrel, with benchmark crude for September delivery up 29 cents at $70.89. On Monday, the contract fell 33 cents.

The dollar fell 0.3 percent to 96.80 and the euro traded 0.1 percent higher at $1.4162.