Stocks in Europe and the U.S. rallied Monday as investors set their hopes on the Federal Reserve to take action to revitalize the U.S. economy after a bout of panic selling last week.
However, gold prices hit a new high of more than $1,890 an ounce earlier in the day, indicating that fears of a double-dip recession are still stalking markets.
Brent crude, meanwhile, fell to near $107 a barrel as Libyan rebels’ capture of most of Tripoli boosted hopes the OPEC nation’s oil exports could resume soon.
Britain’s FTSE 100 jumped 2.6 percent to 5,171, while Germany’s DAX rose 1.9 percent to 5,585. France’s CAC 40 gained 3.1 percent to 3,111.
After a steep sell-off on Friday, Wall Street also opened higher, with the Dow Jones Industrial Average up 1.5 percent at 10,983 and the broader S&P 500 1.7 percent higher at 1,142.
Analysts warned that markets would likely stay volatile in the coming weeks as worries remain about the U.S. and global economies as well as bank funding amid the eurozone debt troubles.
The improved mood in Europe and the U.S. followed a jittery day of trading in Asia, where most markets closed in the red.
Throughout the week, investors will be looking with anticipation to a speech Friday by U.S. Federal Reserve Chairman Ben Bernanke at a retreat in Wyoming.
The Fed pledged earlier this month to keep interest rates super-low through mid-2013. Investors wonder whether Bernanke will announce, or at least preview, further steps to help the economy, including a third round of bond purchases known as quantitative easing.
“Given the absence of deflation risk, we do not expect him to announce QE3,” analysts at UniCredit in Milan wrote in a note, referring to a new round of bond buying. “But he is likely to reiterate that the Fed is prepared to ease monetary policy further if needed.”
The European Central Bank on Monday confirmed that it was taking on a more active role in fighting the eurozone debt crisis, disclosing that it spent euro14.29 billion on buying the bonds of struggling countries like Italy and Spain last week.
That’s below the euro22 billion it doled out the previous week, but has kept the yields, or interest rates, on Italian and Spanish 10-year bonds below 5 percent _ more than a percentage point below record levels seen in the week before the ECB resumed its bond buying program.
However, most economists see the ECB’s purchases as only a temporary sticking plaster in the eurozone’s fight against the debt crisis. Over the weekend, German Chancellor Angela Merkel and EU President Herman Van Rompuy both ruled out the introduction of eurobonds _ debt backed by all 17 euro countries _ anytime soon, squashing investor hopes that a more lasting solution to the currency union’s debt troubles may be in the works paydayloans.
With resistance to eurobonds in the currency union’s rich states remaining firm, analysts warn that any stabilization in stock prices is likely temporary, especially amid growing worries about banks’ funding levels.
“With the north/south divide within the eurozone becoming ever more clearly defined, the chances of finding a solution that will both placate investors and increasingly wary voters in northern Europe seem low,” wrote analysts at the Bank of New York Mellon. “The only question we therefore need to ask is quite where the next signs of stress will emerge.”
That fear manifested itself in gold prices Monday, which briefly rose beyond $1,890 an ounce before falling back to $1,873. Unsure about the outlook for the global economy and more volatile investments like stocks or bonds from weaker economies, investors have been parking their funds in save-haven assets such as gold, the Swiss franc, and the Japanese yen.
The recent rise in the yen contributed to losses in Asia, where most markets ended the day in negative territory.
Japan’s Nikkei 225 index lost 1 percent to close at 8,628.13 _ a five-month low _ as the strong yen hurts the country’s exports by making them more expensive.
Japan intervened in currency markets earlier this month to try to reverse the yen’s climb. The decision to sell the yen and buy the dollar worked initially, sending the greenback toward 80 yen. But the dollar has been weighed down by the dimming outlook for the U.S. economy and is back down to mid 76-yen levels.
South Korea’s Kospi also took a hit, dropping 2 percent to 1,710.70. The Shanghai Composite Index lost 0.7 percent to 2,515.86 while the Shenzhen Composite Index lost 0.9 percent to 1,124.17. Hong Kong’s Hang Seng, meanwhile, swung into positive territory to eke out a 0.5 percent gain at 19,486.87.
Asian markets were the first to open after the developments in Libya, where Moammar Gadhafi’s regime is crumbling after rebels entered the capital of Tripoli on Sunday. Oil prices are expected to fall if the situation can quickly stabilize.
In London, Brent crude for October delivery fell $1.25 per barrel to $107.37 on the ICE Futures exchange.
Benchmark oil for September delivery, however, was up $1.89 at $84.30 a barrel in electronic trading on the New York Mercantile Exchange, in line with the somewhat improved sentiment over the U.S. economy.
Libya used to export about 1.5 million barrels of oil a day, but production all but ground to a halt in recent months as rebels battled to overthrow Gadhafi.
In currency markets, the dollar dipped to 76.77 yen, while the euro rose 0.4 percent to $1.441.
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