Optimism over US economy shores up markets

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Monday, December 23, 2013

AMSTERDAM -- World stocks traded higher on Monday despite concerns over a cash crunch in China as investor sentiment remained buoyed by growing optimism over the U.S. economy.

However, with many traders already off for the Christmas break, volumes were low and are expected to remain so at least until the New Year.

Figures Friday showed the U.S. grew at an annualized rate of 4.1 percent in the third quarter of the year, up from the previous estimate of 3.6 percent. The unexpected strength prompted International Monetary Fund chief Christine Lagarde to say the Washington D.C.-based institution would raise its 2014 U.S. growth forecast from the current estimate of 2.5 percent.

"Sentiment was helped after it emerged the IMF said it will raise its outlook for the U.S.," said Lee Mumford, a trader at Spreadex.

In Europe, Britain's FTSE 100 index was up 0.4 percent to 6,635 by midmorning, while France's CAC 40 was fractionally higher at 4,195. Germany's DAX was the best performer, up 0.5 percent to 9,442.

U.S. stocks appeared set for further gains after Friday's record close, with Dow futures up 0.3 percent and the broader S&P 500 index futures 0.5 percent higher.

Stock markets have largely held their own despite worries over China's credit markets. Even though the Chinese monetary authorities injected more cash into the markets, the rate banks charge each other for 7 day loans has risen to 8.9 percent, from just 4.3 percent at the start of the month.

"The tightening of liquidity conditions in China heading into year-end continues to attract some broader financial market attention," said Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ.

Chinese central bank's action was linked to the U.S. Federal Reserve Bank's decision to cut back its $85 billion bond purchase programs next month, which could weigh on assets in emerging markets.

Earlier in Asia, China's Shanghai Composite 0.2 percent to 2,089.71 while Hong Kong's Hang Seng index rose 0.5 percent to 22,921.56. South Korea's KOSPI rose 0.7 percent to 1,996.89. Tokyo stock markets were closed for the Emperor's Birthday.

Elsewhere, trading was fairly muted. In the currency markets, the euro was flat at $1.3680 while the dollar fell 0.1 percent to 103.93 yen. In the oil markets, a barrel of benchmark crude was 34 cents lower at $98.98.(AP)

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