European and US stocks ended days of sharp losses yesterday, moving higher on the prospect of fresh monetary measures from the US Federal Reserve.
With the meeting of the Federal Open Markets Committee under way, the Dow Jones Industrial Average was up 1.62 per cent to 10,985.09, although some economists doubted that the central bank was ready to unveil a third round of bond purchases known as quantitative easing (QE).
The broader S&P 500 rose 2.59 per cent to 1,148.47, and the tech-heavy Nasdaq Composite picked up 3.03 per cent to 2,429.13.
“Some market participants are speculating that given the falls seen in recent days the Fed might be prompted to look at further measures at stimulating the economy. This optimism could well be misplaced given the high level of inflation in the US, around 3.6 per cent,” CMC Markets analyst Michael Hewson said.
European shares fell as far as six per cent, before bouncing back and stabilising.
At closing, London’s FTSE-100 index was up 1.89 per cent to 5,164.92 points, and in Paris the CAC-40 gained 1.63 per cent to 3,176.19 points.
In Frankfurt the DAX ended nearly flat with a drop of 0.10 per cent to 5,917.08 points.
“At times of extreme tension, it’s common to see such see-saw movements,” Renaud Murail from Barclays Bourse in Paris said.
The chaotic day in Europe came after Asia suffered massive losses and a day after global equities had plummeted on mounting growth and debt strains.
Soaring Chinese inflation announced early in the day compounded fears of a new sharp economic slowdown and upstaged the continued efforts by the European Central Bank to ease unsustainable borrowing prices for Spain and Italy.
Gold prices hit fresh historic highs, the dollar fell against the euro and yen, eurozone bond yields eased and oil futures slumped.
Traders also reacted to weak British industrial output data and rioting in London, which some analysts are blaming on the government’s austerity drive.
“As if the issues of eurozone debt, the US deficit and downgrade and stalling growth were not enough to create a mountain of angst, pictures of London ablaze and Syria in virtual civil war reminds us how close we are to severe social disruption,” said David Hufton, an analyst at brokers PVM Oil Associates.
Elsewhere in Europe, Madrid slipped 0.36 per cent to its lowest level since April 2009 as Milan rose 0.52 per cent, Athens eased 0.19 per cent and Lisbon fell by 0.99 per cent.
Amsterdam rose 1.30 per cent, Brussels gained 2.80 per cent and Switzerland rose 0.60 per cent.
In foreign exchange trade, the euro was higher at $1.4242 while the US currency slid to 77.16 yen from 77.68 yen on Monday.
Gold, seen as a safe investment in troubled economic times, hit a fresh record above $1,780 an ounce before ending at $1,736.
Market uneasiness continued despite a pledge Monday from the G20 group of the world’s most top economies to bolster the global economy.
“It’s possible that markets are starting to slowly share a similar view to ours that the Western World financial system built over the last two to three decades might be totally unsustainable,” Deutsche Bank analysts said in a note.