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European stocks rise as Bernanke soothes on stimulus

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(Globalpost/GlobalPost)

European shares rose on Wednesday as investors welcomed a new reassurance by US Federal Reserve chief Ben Bernanke that any tightening of the US easy-money tap would have to wait until economic recovery was firmly underway.

Speaking to US Congress, Bernanke repeated that the Fed stimulus could be wound up next year if economic growth remained steady as forecast.

But Bernanke added that tapering the big bond-purchase programme is "by no means" a "preset course".

At Capital Economics, senior US economist Paul Dales said: "This is not a new development."

He said: "It was also stressed in the press conference immediately after June's policy meeting and in the minutes of that meeting. But by saying it again, Bernanke is ensuring that the message is being received loud and clear."

European markets switched gears with the testimony and in afternoon trading, London's FTSE 100 index of leading shares rose 0.53 percent to 6,590.96 points.

Frankfurt's DAX 30 rose 0.60 percent to 8,250.24 points and in Paris the CAC 40 gained 0.58 percent to 3,873.00.

The Fed has wrestled with an outsized jump in yields and market interest rates, by more than one percentage point, in the weeks since its path toward reeling in the stimulus became apparent in May.

Markets have tied the eventual drying up of easy-money injections to a likely rise in the benchmark federal funds interest rate, which has been near zero since the end of 2008.

The surge in rates, economists worry, could itself slow the recovery by slowing demand in the recovering housing sector, which has become a key contributor to growth.

US stocks Wednesday also opened higher after Bernanke's comments with the Dow Jones Industrial Average up 0.23 percent and the tech-rich Nasdaq Composite Index adding 0.28 percent.

The market will continue to watch Bernanke as he faces questions from a congressional panel later this morning, said Briefing.com analyst Patrick O'Hare.

"The line of questioning should be tough as members of Congress seek clarity on the tapering timeline and the cost-benefit analysis of the current policy," O'Hare said.

In foreign exchange deals on Wednesday, the European single currency dipped to $1.3151 from $1.3164 late in New York on Tuesday.

And the price of gold fell to $1,284.25 an ounce from $1,291.50 on Tuesday on the London Bullion Market.

In Paris, shares in airline Air France-KLM fell 4.51 percent to 6.26 euros after analysts at Morgan Stanley bank lowered their target for the share price.

And shares in giant French cosmetics group L'Oreal fell by 1.13 percent after the firm reported 4.7-percent rise in first-half sales which disappointed investors.

Asian equity markets meanwhile traded mixed as caution set in before Bernanke, who said recently that the US central bank would maintain its growth-oriented policies for the foreseeable future.

Profit-taking kept stocks in check following two days of broad gains. Hong Kong shares gained 0.28 percent, Tokyo added 0.11 percent and Seoul rose 1.13 percent.

But Shanghai ended 1.0 percent lower and Sydney finished on a flat note.

Also in the sights is a meeting of G20 finance ministers on Thursday and Friday in Moscow, where officials are expected to discuss the Fed's stimulus, while Japan will hold upper house elections at the weekend.

Prime Minister Shinzo Abe's Liberal Democratic Party is tipped to win the majority of the 121 seats up for grabs, giving him control of both chambers and the ability to push on with his aggressive monetary policy drive.

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http://www.globalpost.com/dispatch/news/afp/130717/european-stocks-rise-bernanke-soothes-stimulus