World stocks up on $10 billion rescue for Dubai

Published12/14/2009 8:33 AM

LONDON -- World markets mostly rose Monday after Dubai said it had received $10 billion in emergency funds from its oil-rich neighbor Abu Dhabi, helping to ease investor fears that the emirate will default on its debt.

In Europe, the FTSE 100 index of leading British shares was up 50.05 points, or 1 percent, at 5,311.62 while Germany's DAX rose 53.93 points, or 1 percent, to 5,811.97. The CAC-40 in France was 21.02 points, or 0.6 percent, higher at 3,824.74.


The advance is expected to continue when Wall Street opens -- Dow futures were up 46 points, or 0.4 percent, at 10,469 while the broader Standard & Poor's 500 futures rose 6.1 points, or 0.6 percent, at 1,109.30.

The gains came after Dubai government said the financing would help pay off $4.1 billion in debts owed by struggling Dubai World's property division and due Monday. The rest would go toward bills and expenses through April.

The news cheered investors, who had feared the consequences of Dubai World defaulting. Since the state-owned company announced its intention last month to delay payment on its $60 billion in debts, investors have braced for more financial turmoil and been forced to reevaluate their assumptions about government promises to make good on debts.

"The first reaction has been to view this as a crisis averted, and 'risk friendly' trades are benefiting," said Kit Juckes, chief economist at ECU Group.

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Underpinning the gains too has been solid U.S. economic data over recent weeks, including last Friday's retail sales data for November, which helped reinforce hopes that the world's largest economy was recovering solidly from recession. In conjunction with recent jobs data, analysts said the outlook for the U.S. economy has markedly improved over recent days, but that could mean that the U.S. Federal Reserve brings forward its plan to withdraw extraordinary policy measures put in place to avert a total economic collapse.

As a result, investors will be carefully monitoring the Fed's final interest rate meeting of the year this Wednesday even more closely than normal to see if the accompanying statement is slightly more hawkish than before.

Neil Mackinnon, global strategist at VTB Capital, said there's a risk that the Fed could alter the language in its statement and remove the reference to interest rates being low 'for an extended period' -- code for keeping interest rates at the current level of near zero percent for a while yet.

Investors are also fully aware that gains could well peter out as this is the last full trading week of 2009 and investors may use the opportunity to bolster their portfolios by locking in gains made over the last nine months.


"With the final full week of trading for the year now underway, concerns may also start to build over the risk of traders getting jittery after the massive run of gains we've seen since March, potentially attracting some to start booking profits," said Cameron Peacock, market analyst at IG Markets in Melbourne, Australia.

Earlier in Asia, most stock markets rose with the notable exception of Japan's Nikkei, which closed down 2.19 points at 10,105.68 as investor optimism was weighed down by a fairly sluggish Tankan business confidence survey -- it showed only a modest fourth quarter improvement and a continued reluctance by firms to ramp up their investments.

However, Hong Kong's Hang Seng rose 183.64 points, or 0.8 percent, to 22,085.75 and South Korea's Kospi added 7.87 points, or 0.5 percent, to 1,664.77. Elsewhere, Australia's benchmark added 0.4 percent, China's Shanghai's index was up 1.7 percent and Taiwan's market gained 0.3 percent.

Oil prices fell again, with benchmark crude for January delivery down 76 cents at $69.11 a barrel, while gold rose 0.3 percent to $1,123.50 an ounce.

Meanwhile, the dollar fell 0.5 percent to 88.55 yen while the euro was flat at $1.4625.

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