World shares surge on optimism

Stocks in Europe and on Wall Street surged to start the final month of the year with an optimistic view that central banks and policy makers on both sides of the Atlantic were committed to shoring up economic growth.

In midday trading, the Dow Jones Industrial Average jumped 2.18 per cent, the Standard & Poor's 500 Index added 2.12 per cent and the Nasdaq Composite advanced 2.25 per cent.

Investors drew confidence from better-than-expected data from the US, China and Europe.

The official Chinese purchasing managers' index (PMI) rose to a seven-month high of 55.2, surpassing expectations and bolstering confidence about the pace of expansion in one of the world's largest economies.

In Europe, the euro zone's manufacturing sector grew at its fastest pace in four months in November. In the US, private sector payrolls posted their biggest advance in three years in November, a sign that bodes well for Friday's key government employment report.

"We're working our way back," David Joys, chief market strategist at Columbia Management in Boston, told Bloomberg News.

"The ADP number shows that we're clearly going in the right direction," he said.

The CBOE Volatility index, Wall Street's so-called 'fear gauge', dropped 11.85 per cent to 20.75.

In Europe, the Stoxx 600 motored 2 per cent ahead to close at 267.11, the largest jump in three months.

National benchmark indexes rose in all 18 western European markets.

Portugal's PSI-20 soared 3 per cent even as Standard & Poor's said it might lower the country's credit rating.

The Dollar Index, which measures the greenback against a basket of six major currencies, slipped 0.71 per cent to 80.72.

The euro was last at US$1.3083, up 0.8 per cent on the day, while the greenback last traded at 84.25 yen, up 0.7 per cent on the day.

Investors will closely watch whether the European Central Bank will take further action at its meeting on Thursday and sentiment remained cautious.

"The recovery in euro has been subtle, with more losses likely in the coming days, as the debt issues haven't abated yet," Richcomm Global Services analyst Pradeep Unni told Reuters.

Still there's reason for optimism in 2011. US stocks will gain next year as companies continue to boost profits and the Federal Reserve keeps its US$600 billion commitment to boosting the economy, RBC Capital Markets said in a report today.

US crude for January rose US$1.45 to US$85.56 a barrel by 1607 GMT, after posting a drop of almost 2 per cent yesterday. Brent crude was up US$1.70 at US$87.62.

"From the depths of despair yesterday that resulted in a sell-off, there is a rash of positive economic data everywhere you look today, and that pulled prices up," Phil Flynn, an analyst at PFGBest Research in Chicago, told Reuters.