Global Markets Overview 08/10/2011

US Markets

U.S. stocks soared in turbulent trading Tuesday, coming off the worst three day selloff since the financial crisis, as investors took in stride the Federal Reserve's pledge to keep interest rates near zero at least through mid-2013. The Dow Jones Industrial Average finished near session highs, up 429.92 points, or 3.98%, at 11293.77. The index, which had gained as much as 243 points at its morning high, saw its rally fade ahead of the Fed decision and then turned negative after the statement was released. It fell as much as 206 points before it turned positive again and marched sharply higher in the final trading hour.

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The volatile trading came as the Fed signaled it will keep its benchmark short-term interest rate close to zero for at least another two years. The central bank also sharply downgraded its view of the U.S. economy. In a statement after a one-day policy meeting, Fed officials said they expect the weak economy to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

Seven voted in favor of this action, and three voted against it. Fed officials also downgraded their assessment of the U.S. economy for the third time this year, saying that economic growth so far this year has been considerably slower than expected. The Dow's sharp gains came after it fell 635 points on Monday, the sixth-biggest point drop in its history.

Jittery investors have fretted in the wake of Standard & Poor's downgrade of the U.S. government's credit rating and the possibility that the economy could slide into another recession. The Standard & Poor's 500-stock index rose 53.07 points, or 4.74%, to 1172.53, led higher by the financials and material sectors. The S&P 500's financial sector, which was hit the hardest in Monday's drubbing, finished up 8.2%. The technology-oriented Nasdaq Composite gained 124.83 points, or 5.29%, to 2482.52.

European Markets

European stocks snapped a seven-session losing streak Tuesday, closing higher as investors stepped in to buy beaten-down shares after recent dramatic declines. Capping a volatile session, the Stoxx Europe 600 index ended 1.4% higher at 232.20, following a 4.1% slide Monday. Among stocks that had tumbled in the previous session and rebounded Tuesday were car maker BMW, up 6.3% in Frankfurt, and telecom-equipment firm Alcatel-Lucent, which surged 9.2% in Paris. The U.K.'s FTSE 100 index rallied 2.1% to 5175.50, boosted by an 8.2% leap in shares of InterContinental Hotels Group after the company reported an increase in first-half profit.

Among big decliners in London, Royal Bank of Scotland Group fell 3.9% and silver miner Fresnillo slumped 7.3%, tracking a drop in silver prices. Germany's DAX was unable to end in positive territory, falling 0.1% to 5917.08 after a tumultuous session in which the index fell as low as 5502.63. RWE sank 6.3% after the utility firm said first-half net profit fell 22% and cut its earnings forecast, citing pressure from Germany's decision to close its nuclear reactors.

In the same sector, E.On fell 5.9%. Also in Germany, Deutsche Telecom fell 3.5% and Deutsche Bank dropped 2.9%. In Paris, the CAC 40 index rose 1.6% to 3176.19, with auto-related and technology stocks offering support. Michelin rallied 4.7%. Electricite de France fell 4.8%, in line with losses for other European utility stocks.

Asian Markets

Most Asian stock markets ended sharply lower Tuesday after a massive selloff in the U.S. Monday undermined already-fragile confidence, although markets came off early lows and Australian shares finished higher. Japan's Nikkei Stock Average closed down 1.7% at 8,944.48, South Korea's Kospi ended down 3.6% at 1,801.35 after trading off as much as 9.9%, and Taiwan's Taiex slid 0.8% to 7,493.12. India's BSE Sensex also finished down 0.8% at 16,857.90.

Hong Kong's Hang Seng Index plunged 5.7% to 19,330.70, while the Shanghai Composite Index ended little changed at 2,526.07. Both indexes are now in a so-called bear market, having lost 20% or more from their 52-week highs recorded in November. But China's shares came off lows despite the country's July consumer price index rising to a higher than expected 6.5% on the year as market participants said they don't expect Beijing to launch further tightening measures given the tumultuous global markets. Asian banks extended heavy losses during the session after their U.S. counterparts were beaten down on Wall Street on Monday. In Hong Kong, HSBC Holdings Ltd. fell 7.3%,

Standard Chartered PLC dropped 5.6% and Bank of China Ltd. lost 7.2%. In Tokyo, Nomura Holdings Inc. skidded 3.8% and Mitsubishi UFJ Financial Group Inc. fell 2.4%. Korean exporters were among those hit hard by heavy foreign selling, with LG Electronics Inc. losing 8.1% and Hyundai Motor Co. shrinking 2.8%. With 52% of South Korea's GDP coming from exports, concerns of a flagging U.S. economy leading to lower sales of gadgets and autos could weigh on the country's exporters.

Commodities

Base metals closed mostly higher Tuesday, propped up as equity markets cut their losses and the euro bounced against the U.S. dollar. Sentiment across financial markets improved on hopes that the Federal Open Market Committee will take measures to support the U.S. economy and markets. Copper was one of the only metals not to close higher, pressured by technical selling after its recent slump below $9,000 a metric ton. The red metal for three month delivery closed down 0.6% at $8,731/ton. Lead was the biggest riser for the day, climbing 2.2% to $2,254/ton.

Crude futures settled below $80 a barrel Tuesday for the first time in nearly 10 months, extending declines after the Federal Reserve vowed to keep interest rates low but stopped short of promising further economic stimulus. Light, sweet crude for September delivery settled $2.01, or 2.5%, lower at $79.30 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange closed $1.17 lower at $102.57 a barrel.

Gold raced higher after the Federal Reserve said the weak economy will warrant low interest rates until at least mid-2013, jumping nearly $25 above its record settlement price in the minutes following the report as it lived up to its safe harbor label. The most-actively traded contract, for December delivery, settled $29.80, or 1.7%, higher at a record $1,743.00 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract set an intraday record of $1,782.50.