World shares rally on Fed, ECB bets

Trader Sal Suarino works on the floor of the New York Stock Exchange. File photo / AP

Equities on Wall Street and in Europe rallied overnight amid indications the US Federal Reserve will refrain from raising interest rates until April, while weak German data underpinned expectations the European Central Bank will announce a plan for quantitative easing within weeks.

On Wednesday, minutes of the December Federal Open Market Committee meeting showed that "most participants thought the reference to patience (with regard to starting to lift interest rates) indicated that the Committee was unlikely to begin the normalisation process for at least the next couple of meetings."

Meanwhile, there was still further evidence of US economic strength. A Labor Department report showed initial claims for unemployment benefits fell by 4,000 to a seasonally adjusted 294,000 for the week ended January 3.

"Labour market conditions continue to improve, providing support for consumers and contributing to a virtuous cycle for the economy," Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan, told Reuters.

A government report on Friday is expected to show US payrolls increased by 240,000 in December, while the jobless rate is forecast to drop to 5.7 per cent, making it the lowest since June 2008, according to a Bloomberg News survey.

In afternoon trading in New York, the Dow Jones Industrial Average rallied 1.63 per cent, the Standard & Poor's 500 Index climbed 1.57 per cent, while the Nasdaq Composite Index added 1.69 per cent.

Gains in shares of UnitedHealth and those of DuPont, up 4 per cent and 3.4 per cent respectively, propelled the Dow higher.

"There is a Fed that is going to be patient and pretty transparent on when they are going to raise rates and an economy that is doing pretty well," Sean Lynch, co-head of global equity strategy at Wells Fargo Investment Institute in Omaha, told Reuters. "The other factor that is getting investors excited is the fact the ECB may come in a couple of weeks and do a more robust action around their quantitative easing program."

In Europe, the Stoxx 600 Index finished the day with a 2.8 per cent jump from the previous close. The UK's FTSE 100 Index climbed 2.3 per cent, Germany's DAX Index soared 3.4 per cent, France's CAC 40 Index gained 3.6 per cent.

A report showing a larger-than-expected drop in German manufacturing orders fuelled expectations the European Central Bank will soon launch a program to buy government bonds to help stoke the moribund euro-zone economy. The bank's governing council meets on January 22.

"Market participants expect quantitative easing from the ECB," Christoph Riniker, head of strategy research at Julius Baer Group in Zurich, told Bloomberg News. "After the ECB meeting and Greek elections, there is certainly some uncertainty that will leave the market. QE equals sentiment boost." The elections in Greece are set for January 25.

Separately, ING Group predicts the euro will continue to weaken to US$1, a level last seen in 2002, within two years, while Royal Bank of Scotland Group forecast German 10-year government bond yields, already at the lowest on record, may drop to near zero by the end of this quarter, Bloomberg News reported.