Stocks up as incoming Fed head backs stimulus

AP and AFP

KUALA LUMPUR/HONG KONG–World stocks rose Thursday after comments by the incoming Federal Reserve chief suggested the U.S. central bank won’t reduce its economic stimulus until March or later. Gains in Europe, however, were capped by evidence the recovery there nearly ground to a halt.

Janet Yellen, who is slated to replace Ben Bernanke as Fed chairman at the end of January, will testify before the Senate banking committee later Thursday. Analysts said her published introductory remarks were a boost for stock markets that have been propelled higher since the aftermath of the 2008 financial crisis by the Fed’s super-low interest rate and bond buying policies.

While there was progress in the U.S. recovery, Yellen said the labor market and economy are “performing far short of their potential.” She said unemployment was still too high and inflation still below target. She reiterated the world’s No. 1 economy must show continued signs of improvement before the Fed starts tapering off its US$85 billion of monthly bond purchases.

“That statement alone has changed the landscape of trade today,” said Evan Lucas, market strategist with IG in Melbourne, Australia. It suggests the bond buying effort, which has kept commercial interest rates low to encourage borrowing and investment, will be kept in place at current levels until the end of the first quarter of next year, he said.

Analysts had previously thought the Fed would start reducing its stimulus in December or January.

Major European benchmarks rose in early trading, though momentum was dented by figures showing the eurozone economy grew a mere 0.1 percent in the third quarter, just three months after emerging from recession. The figure showed weakness in core economies, such as France and Germany, and only mild improvements in crisis-hit countries like Spain.

Germany’s DAX was up 0.8 percent to 9,126.27 while France’s CAC-40 was up 0.6 percent to 4,267.20. Britain’s FTSE 100 gained 0.7 percent to 6,673.64.

Asian markets rose Thursday on hopes that Yellen will keep the Fed’s stimulus program in place, with Tokyo leading gains after third-quarter economic growth data beat forecasts.