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The Dow Jones Industrial Average rose on the open after setting a record on Tuesday, as doubts over $85 billion of spending cuts were replaced by optimism that the US economic recovery was back on track. Richard Drew / AP Photo
The Dow Jones Industrial Average rose on the open after setting a record on Tuesday, as doubts over $85 billion of spending cuts were replaced by optimism that the US economic recovery was back on track. Richard Drew / AP Photo

Markets stir to life with US recovery

World markets are euphoric after the US extends record highs hit on Tuesday, which saw the Dow Jones Industrial Average erasing losses from the financial crisis.

World markets rallied after US stocks erased their losses from the global financial crisis and hit a record high.

The Dow Jones Industrial Average rose on the open after setting a record on Tuesday, as fears over $85 billion (Dh312.2bn) of spending cuts - known as the "sequester" - were replaced by optimism that the US economic recovery was back on track. The dollar strengthened against most major currencies, as a US private sector employment report said 198,000 jobs were created last month, better than had been expected by analysts.

But market behaviour had become decoupled from the fundamentals of the US economy and was probably approaching a peak, even if the recent rally had further to travel, said Steen Jakobsen, the chief economist at Saxo Bank.

"It's no longer a wall of worry being climbed - it's also a wall of momentum," he said. "People know there's something at the end of the rainbow, but they're not concerned about that." Markets were seeking "instant gratification" as developed market investors saw little alternative to equities, with bonds falling out of favour because of declining yields. Other developed markets also made gains, with the Stoxx 600 index of European equities hitting the highest level since June 2008, rising 0.3 per cent in afternoon trading. The Nikkei 225 also rose 2.1 per cent as optimism over Bank of Japan stimulus increased.

Improving fundamentals in Europe were contributing to the renewed sense of optimism, despite worries concerning Italy's election result and the potential costs of bailing out Cyprus, said Ulrich Kater, the chief economist at DekaBank, the asset manager to Germany's network of savings banks.

"We have come through the severe phase of the euro crisis and industrialised countries are now on a necessary path of consolidation," he said.

Emerging market stocks, which have lagged G7 counterparts so far this year, also made headway, as the MSCI Emerging Markets index climbed 0.8 per cent.

The UAE's markets were a different story, with the Dubai Financial Market General Index slipping 0.1 per cent to 1,874.50, while the Abu Dhabi Securities Exchange General Index fell 0.5 per cent to 3,001,95.

Dubai's market was led lower by index heavyweights Mashreq and Arabtec, although most stocks registered gains. Declines for First Gulf Bank, Etisalat and Commercial Bank International hit the capital's market measure.

 

ghunter@thenational.ae

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