Investing

World stocks rally on hopes for economic recovery

World stocks rose today as upbeat news about U.S. housing and banks and a sharp improvement in German investor sentiment suggested the world economy was headed for recovery.

Financial stocks were boosted by news that Goldman Sachs and Morgan Stanley have formally asked the U.S. Federal Reserve for permission to repay a combined $20 billion in federal bailout money.

Germany’s ZEW business sentiment indicator rose for a seventh consecutive month, while oil companies were helped as crude oil traded near $60 a barrel.

In European afternoon trade, Germany’s DAX was 1.9 percent higher at 4,941.52 and Britain’s FTSE 100 was 0.7 percent higher at 4,475.20. France’s CAC 40 gained 1.0 percent at 3,275.86.

Asia also gained, with some indexes rising more than 3 percent, as did the Dow Jones industrial average and the Standard & Poor’s 500 overnight.

U.S. futures pointed to more gains on Wall Street Tuesday. Dow futures were up 42 points at 8,512 and S&P futures were up 4.7 at 911.80.

Investors’ appetite for risk returned as they latched on to reassuring signals from the two U.S. industries at the heart of the economic crisis: housing and financials.

Home improvement chain Home Depot’s first-quarter earnings rose more than expected, as did those for competitor Lowe’s a day earlier. Homebuilder confidence rose in the U.S. and major investment banks offered to pay back their bailout funds — suggesting the recession in the world’s largest economy is easing.

In Germany, the ZEW indicator of investor expectations improved more than expected — to 31.1 points in May from 13.0 points the previous month. Although it rose from historically low levels, it edged above its own long-term average.

Jennifer McKeown, European economist at Capital Economics in London, said the figure was better than expected and “confirms that investors expect economic conditions to improve, but only from an extremely weak starting point.”

She noted that views of current economic conditions continued to slide. “Rising optimism has yet to translate into an actual improvement.”

That did not stop stocks from rising even further Tuesday, with oil and gas, mining and financial companies making strong gains across all regions.

Bank of Ireland jumped 32 percent after reporting a 97 percent plunge in full-year profits which was nevertheless better than analysts’ grim expectations.

In Britain, mining companies such as Anglo American gained as much as 6 percent. The biggest loser was retailer Marks & Spencer, whose shares were 7 percent lower after it reported a 38 percent drop in full-year profits due to intense competition and price cuts.

Andrew Orchard, Asia strategist for Royal Bank of Scotland in Hong Kong, said Tuesday’s rise in equities was forcing even those who don’t believe in an economic recovery to reconsider their investment strategies.

“I’m still not convinced of a longer-term recovery, although I do think this rally can continue for several months,” he said. “As the markets continue to pick up, more people have to invest, whether they believe in the recovery or not.”

In Asia, Japan’s Nikkei 225 stock average rose 251.60 points, or 2.8 percent, to 9,290.29, with some investors cautious ahead of the release of gross domestic product data on Wednesday. Hong Kong’s Hang Seng climbed 521.12, or 3.1 percent, to 17,544.03. South Korea’s Kospi closed up 3 percent at 1,428.21.

In India, where stocks surged 17 percent the day before after the results of national elections, the Sensex added another 2.7 percent. The Shanghai index gained 0.9 percent, Australia’s stock measure was 2.2 percent higher and Taiwan’s market rose 1.2 percent.

Shares in resources companies were higher on the back of stronger commodities prices. Among oil firms, Chinese mega producer PetroChina gained 5 percent and Japan’s Inpex added 5.4 percent.

In oil markets, the benchmark crude contract for June delivery rose 89 cents to $59.92 in European trade. On Monday, the contract jumped $2.69 to settle at $59.03.

In currencies, the euro edged up to $1.3618 from $1.3554 late Monday while the dollar fell somewhat against the Japanese yen, to 96.15 yen from 96.36 yen.