World stocks continue to rally on US economy hopes

LONDON (AP) -- World stock markets rose Wednesday despite mounting tensions in the Korean peninsula, as investors continued to warm to hopes that the U.S. economy has seen off the worst of the economic recession and may start to grow later this year.

The FTSE 100 index of leading British shares was up 2.76 points, or 0.1 percent, at 4,414.48 while Germany's DAX rose 14.12 points, or 0.3 percent, to 4,999.72. The CAC-40 in France was 17.82 points, or 0.5 percent, higher at 3,287.91.

The gains in Asia earlier were more substantial as investors played catch-up following Tuesday's turnaround in Europe and the big advance on Wall Street. Japan's benchmark Nikkei 225 stock average rose 127.96 points, or 1.4 percent, to 9,438.77 while Hong Kong's Hang Seng surged 893.71, or 5.3 percent, to 17,885.27.

The catalyst to this week's turnaround in market sentiment was a report Tuesday showing that U.S. consumer confidence jumped in May to its highest level since September. The Conference Board said its main consumer confidence index surged to 54.9 from a revised 40.8 in April, way ahead of analysts' expectations for a more modest rise to 42.3.

The improvement suggests Americans are more likely to shop, particularly on bigger items such as cars and homes.

Without the support of the U.S. consumer, which accounts for around 70 percent of the world's largest economy and 20 percent of the global economy, any global economic recovery will soon fizzle out.

"There had certainly been some concern that the nuclear tests in North Korea would unsettle financial markets but this isn't proving to be the case and traders are instead jumping on numbers such as U.S. consumer sentiment as testament that the fundamentals are starting to improve, even if we do have a long way still to go," said Matt Buckland, a dealer at CMC Markets.

Despite a recent lull, stocks around the world have rallied strongly over the last few weeks -- with some major indexes moving into positive territory for the year -- prompting some investors to claim the markets are over the worst.

The trigger for the gains has been better than expected economic news, particularly in the U.S., which has fueled an increase in appetite for risk on hopes that the global recession is receding. Stock markets usually start recovering between 6-9 months before an actual economic recovery emerges.

There are some concerns that the markets, having rallied since March, are now being largely driven by hot money and that the liquidity boost from the world's central banks over the last few months has pushed stock prices above what many companies can actually earn without a dramatic pick up in economic activity in the coming months.

"The recovery that we have seen in the market so far has surpassed expectations and it remains to be seen if this trend will continue," said John Mar, co-head of sales trading at Daiwa Securities SMBC Co. in Hong Kong.

"Finding investment ideas with lucrative upside is becoming far more difficult by the day. Current valuations are reflecting a very rapid global economic recovery and that seems unlikely," he said.

For now though, the improvement was set to continue in the U.S. Dow futures rose 12, or 0.1 percent, to 8,473 while the broader Standard & Poor's 500 futures were up 1 point, or 0.1 percent, at 909.70. On Tuesday, the consumer confidence news helped the Dow Jones industrial average rise 2.4 percent and the S&P 500 push up 2.6 percent.

Elsewhere in Asia, Shanghai's index added 1.7 percent while Australia's benchmark was up 0.3 percent. Taiwan's stock measure gained 3.1 percent, and Singapore's index added 2.8 percent.

But South Korea's Kospi slipped 0.7 percent to 1,362.02, overshadowed by the rising tension on the Korean peninsula. In a sign of North Korea's increasingly aggressive posture, Pyongyang reportedly restarted a weapons-grade nuclear plant as world powers moved Wednesday to punish the regime, possibly with new sanctions.

Oil prices were higher, with benchmark crude for July delivery up 74 cents to $63.24 a barrel. On Tuesday, the contract rose 78 cents to settle at $62.45.

In currencies, the dollar inched higher to 95.36 yen from 95.26 yen. The euro was lower at $1.3966 from $1.3997.