World stocks rise as China rate hike fear fizzles

A man finds minimal place to shelter from a rain shower in front of the digital display of global stock indexes showing a most upward trend in Tokyo, Monday, Dec. 13, 2010. (AP Photo/Koji Sasahara)

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LONDON (AP) — World markets rose Monday after Chinese authorities refrained from raising interest rates over the weekend and said they favored a strong growth policy despite high inflation.

China’s two main stock benchmarks soared, fueling gains in other regions.

Britain’s FTSE 100 was up 0.7 percent at 5,854.33 and Germany’s DAX was 0.3 percent higher at 7,024.96. France’s CAC-40 was up 0.7 percent at 3,882.78.

Asian markets closed higher and Wall Street was expected to rise on the open — Dow futures were 0.4 percent higher at 11,344 and Standard Poor’s futures were up 0.7 percent at 1,235.90.

Fears of a weekend rate hike in China, where a move was expected during a senior policymakers’ meeting, fizzled even amid news that inflation surged to a 28-month high of 5.1 percent in November. Instead, the central bank ordered another increase in banks’ capital reserves on Friday in the latest move to reduce excess liquidity.

Investors were encouraged by the outcome of China’s annual economic planning meeting, where leaders affirmed their determination to fight inflation while also keeping growth on track.

“The worries over an interest rate hike turned out to be simply a rise in the bank reserve ratio, which successfully ignited investors’ enthusiasm. As long as there are not fresh monetary policy moves this year, the rebound will likely persist,” said Liu Kan, an analyst at Guoyuan Securities, in Shanghai.

Tensions surrounding Europe’s debt crisis have eased somewhat in recent days, but the euro remains under pressure against the dollar. It was down to $1.3211 on Monday from $1.3223 late Friday in New York.

The focus will turn to a European Union leaders’ meeting on Thursday and Friday, where Germany will push for the creation of a permenent crisis mechanism that will apply new rules to bailouts and seek to reinforce confidence in European debt markets.

Germany and France, the region’s growth engines and bankrollers, have resisted calls by fellow European nations to issue European bonds — linking debt markets from Germany to Portugal to Greece — or boost the size of the current $1 trillion bailout fund.

The crisis kept pressure on weak countries like Spain. Ratings agency Moody’s Investor Service said it is keeping a negative outlook on the country’s banks, citing poor economic growth, capitalization and difficult access to credit.

Eyes are also on Italy, where votes of confidence threaten to bring down the government of premier Silvio Berlusconi. The embattled prime minister claims a power vacuum would hurt the country at a time when debt markets are putting pressure on its finances. Opponents, however, say a leadership change is required to regain focus on reforms in the wake of a series of confidence-sapping scandals involving Berlusconi.

By the close, Asian markets were all higher. The Shanghai Composite Index gained 2.9 percent to 2,922.95. The Shenzhen Composite Index for China’s smaller, second market jumped 3.1 percent.

Japan’s Nikkei 225 stock average closed up 0.8 percent to 10,293.89 and South Korea’s Kospi added 0.5 percent to 1,996.59.

Hong Kong’s Hang Seng index rose 0.7 percent to 23,317.61 and Australia’s SP/ASX 200 inched 0.2 percent higher to 4,757.10. Stocks in Taiwan, India and Thailand also rose.

The dollar rose to 84.27 yen from 83.91 yen.

Benchmark crude for January delivery was up 66 cents at $88.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 58 cents to settle at $87.79 on Friday.

AP researcher Ji Chen in Shanghai contributed to this report.

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