The Dow Jones industrial average hit a record high on Tuesday as major world stock markets rallied after China pledged more government spending to boost economic growth and data showed the US service sector expanding at its fastest pace in a year in February.
Crude oil and copper prices also advanced on China’s pledge to deliver economic growth of 7.5 per cent this year in the world’s second-largest economy.
On Wall Street,the Dow surpassed the highs seen in 2007,before the financial crisis,breaking the previous intraday record of 14,198.10 set on October 11,2007.
“Stocks are close to fair value,but very cheap relative to the bond market and to cash,which is very expensive,” said David Kelly,managing director and chief market strategist at JPMorgan Asset Management in New York.
“Central banks have been keeping rates low and that justified higher stock prices. But we weren’t seeing that because of these risks. As these risks have diminished,money is going into stocks because it has nowhere else to go. That led to the new high on the Dow Jones industrial average today,” he said.
In afternoon trade on Tuesday,the Dow Jones industrial average rose 153.83 points,or 1.09 per cent,at 14,278.61 at 1:40 pm,New York time. The Standard & Poor’s 500 Index was up 16.87 points,or 1.11 per cent,at 1,542.16 . The Nasdaq Composite Index was up 44.34 points,or 1.39 per cent,at 3,225.18.
In the oil market,Brent was on track to buck a five-day losing streak as the North Sea Brent pipeline remained closed for a third day and investors bet on strong Chinese oil demand. Brent crude oil rose 0.85 per cent to $111.02 per barrel at 1:30 pm in New York.
Investors bet big on equities
The S&P Sensex at the BSE on Tuesday posted its biggest gain of 265 points this year in line with the jump in Asian stocks amid optimism that central banks will continue stimulus measures to boost their economies. The BSE rally was also helped by the finance ministers comments on more sops for reviving growth that triggered off buying activity. The Chinese governments announcement of boosting spending sent commodities on an upswing. News of the US services sector expanding at its fastest pace sent the Dow Jones Industrial Average soaring to record high levels.
European shares bolted higher from the start of trading on Tuesday with the broad FTSEurofirst 300 index rising by 1.2 per cent at midday to be around 1,182.75 points,a fresh two-year high,as investors bet major central banks would keep monetary policy easy at meetings this week.
The weaker dollar and prospects of more liquidity fuelled the commodity markets. Gold rose nearly half a percent to $1,581.84 an ounce after four straight sessions of falls. Copper on the London Metal Exchange rose to $7,774.25 a tonne. Brent crude touched $111.
Stocks in Tokyo rose on hopes that the Bank of Japan might demonstrate a shift in monetary policy to conform to the program championed by new Prime Minister Shinzo Abe. Hong Kongs Hang Seng rose 0.1 per cent after the Chinese premier pledged to support growth.
Chinese Premier Wen Jiabao on Tuesday pledged to transform China into a consumer-driven economy,changing tack to wean the worlds second-largest economy away from reliance on trade and investment even as it aimed for 7.5 per cent growth.