World markets up as Dubai contagion fears ease

World stock markets rose sharply Tuesday as fears about Dubai’s debt problems eased after the emirate’s government investment company said it was in talks to restructure a large chunk of its business.

Meanwhile, gold was close to breaking through $1,200 an ounce after hitting a new all-time high amid renewed dollar weakness. The dollar fell against the yen as the Bank of Japan gave no indication it was prepared to intervene in markets to stop the rise of its national currency.

In Europe, the FTSE 100 index of leading British shares was up 92.37 points, or 1.8 percent, at 5,283.05 while Germany’s DAX rose 111.01 points, or 2 percent, at 5,736.96. The CAC-40 in France was 68.44 points, or 1.9 percent, higher at 3,748.59.

US stocks are expected to power ahead at the open too — Dow futures were up 66 points, or 0.6 percent, at 10,400 while the broader Standard & Poor’s 500 futures rose 8.1 points, or 0.7 percent, at 1,102.90. The Dow and the S&P 500 closed out November fairly solidly on Tuesday, ending up more than 5 percent on the month, the biggest monthly advance since July.

The underlying reason behind Tuesday’s rally centered on Dubai as investors concluded that there will be limited contagion from the emirate.

‘With markets once again having apparently succeeded in shaking off the latest shocks, investors seem to have found another fresh bout of confidence and it would not be a surprise for stock markets to achieve fresh recovery highs as this month goes on,’ said Anthony Grech, market analyst at IG Index.

Last week’s announcement from Dubai World, a government investment company with some $60 billion worth of debts, that it wanted to postpone forthcoming debt payments until May sent shockwaves around financial markets.

Those jitters were still evident in the emirates’ stock markets, where shares slid again.

But with the Dubai contagion fears dissipating in the rest of the world, investors were once again focusing on the fundamentals ahead of a raft of economic news that could have a crucial bearing on how stock markets close out the year.

Friday’s US nonfarm payrolls report for November will be key — the data often sets the tone in markets for a week or two. However, there are other important US releases due, including the Institute for Supply Management’s surveys into the services and manufacturing sectors. The latter is released at 1500 GMT.

If investors conclude that the US economy is losing some steam, then that could well pave the way for an end of year bout of profit-taking following an eight-month bull run.

Earlier in Asia, Japan’s Nikkei closed up 226.65 points, or 2.4 percent, at 9,572.20.

After the markets closed, the Bank of Japan said it had decided to keep its benchmark rate unchanged at 0.1 percent and announced it would provide short term loans to banks totaling 10 trillion yen, or $115 billion.

Nothing emerged to directly counter the rise in the yen, which prompted a big fall in the dollar against the Japanese currency. Though the dollar was 0.6 percent up on the day at 86.81 yen in mid-afternoon London trade, it had traded as high as 87.53 yen earlier in the day.

Meanwhile, the euro was 0.5 percent higher at $1,5087 and heading up to 16-month highs.

The weakness in the dollar as well as the Bank of Japan’s announcement triggered renewed buying of gold as the precious metal is considered a hedge against a falling dollar and inflation in the future.

Gold was trading 0.9 percent higher at $1,192.80, off its earlier all-time high of $1,199.25.

Elsewhere in Asia, Hong Kong’s Hang Seng gained 291.65 points, or 1.3 percent, to 22,113.15 and South Korea’s Kospi rose 14.12, or 0.9 percent, to 1,569.72 after the government said exports rose from a year earlier in November for the first time in 13 months.

Elsewhere, Australia’s benchmark added 0.4 percent, Singapore’s market was up 1.1 percent and China’s Shanghai index rose 1.3 percent.

Oil prices rose above $78 a barrel as Iran’s detention of five British sailors kept the market on edge. Benchmark crude for January delivery was up 78 cents at $78.06 in electronic trading on the New York Mercantile Exchange.