China rate cut, Fed stimulus hopes boost markets

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By CARLO PIOVANO, Associated Press

LONDON (AP) — Global markets rose on Thursday, boosted by China's decision to cut interest rates, hopes that the Federal Reserve will consider new support for the U.S. economy and speculation Europe is preparing to give Spain financial aid.

China cut its benchmark lending rate by a quarter percentage point to 6.31 percent for the first time since 2008 to support growth in its cooling economy, the world's second-largest.

The move is the strongest sign yet that authorities in Beijing are determined to avoid a sharp slowdown. Chinese economic growth has been one of the pillars of the global economy in recent years, so the move boosted sentiment in financial markets worldwide.

Germany's DAX closed 0.8 percent higher at 6,144.22 while France's CAC-40 rose 0.4 percent to 3,071.16. Britain's FTSE 100 gained 1.2 percent to 5,447.79. Madrid's Ibex was up 0.3 percent, while its 10-year bond yield slumped to 6.04 percent from 6.30 percent before the bond auction results.

Wall Street also rose, with the Dow Jones industrial average up 0.6 percent to 12,490.13 and the S&P 500 rising 0.4 percent to 1,320.62.

Further boosting markets, Fed Chairman Ben Bernanke said the central bank is prepared to take further steps to support the U.S. economy if it weakens. A day earlier, three Fed officials suggested that the central bank may need to do more to help the economy.

Although most analysts do not expect the Fed to offer new stimulus measures at its next policy meeting June 19-20, Bernanke's comments reassured investors worried about a slowdown in the world's largest economy.

In Europe, which has been a key source of turmoil for financial markets in recent weeks, the mood was lightened by reports that Spain may get financial aid.

Spain's government cannot afford to rescue its banking sector but is reluctant to accept a full-fledged bailout from its eurozone partners, as that would mean giving up control over some of its domestic policies.

Investors hope that European officials will agree to a compromise solution — giving Madrid the money but reassuring it that it will not have to take harsh new austerity measures.

"There is speculation that EU officials are coordinating some form of support for Spain, especially for its banking sector, but details of what this will entail is lacking," said Mitul Kotecha, analyst at Credit Agricole CIB.

In the meantime, the hopes for a rescue boosted Spain's bond markets, helping it raise money in a debt auction. Although its borrowing rate for 10-year bonds was higher than earlier auctions, it was lower than the rate international investors were demanding in the secondary bond market — where issued bonds are traded freely.

The improved market sentiment also helped the euro, which rose to $1.2562 from $1.2546 late Wednesday in New York

Earlier in Asia, stock indexes had closed higher. Japan's Nikkei 225 index added 1.2 percent to 8,639.72, Hong Kong's Hang Seng gained 0.9 percent to 18,678.29 and South Korea's Kospi index jumped 2.6 percent to 1,847.95.

Australia's S&P/ASX 200 climbed 1.3 percent to 4,108.60. Benchmarks in New Zealand, Taiwan and Indonesia also rose, but those in mainland China and Singapore fell.

Benchmark oil for July delivery was up 30 cents to $85.32 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 73 cents to settle at $85.02 in New York on Wednesday.

The dollar rose to 79.63 yen from 79.18 yen late Wednesday in New York.

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Pamela Sampson in Bangkok contributed to this report.

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