Stocks and oil rally; dollar falls as Fed meets

By Walker Simon

NEW YORK (BestGrowthStock) – World stocks neared a two-year high on Tuesday on stronger-than-expected economic data while the dollar fell as investors anticipated the U.S. central bank will open the money spigot to spur the flagging U.S. economy.

U.S. stocks (Read more about the stock market today. ) also got a boost from investors’ expectations of strong Republican gains in Congress halfway through the term of Democratic U.S. President Barack Obama. Shares in sectors such as healthcare, deemed likely to benefit from the rebalancing of power, advanced.

In campaigns, Republicans accused Democrats of stifling business with regulations and failing to extend tax cuts, while Democrats countered with claims that Republicans blocked economic recovery programs.

“I think it is people trying to get in front of what they think will be the election results,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York, in reference to expectations of Republicans’ gains.

Japanese stocks were set for a strong opening, with Nikkei futures traded in Chicago jumping 85 points to 9,225.00.

The dollar fell against a basket of major currencies, with the U.S. Dollar Index (.DXY: ) down 0.74 percent. A drop in the greenback makes dollar-denominated commodities, including oil, cheaper for non-U.S. investors. U.S. crude oil futures for December delivery gained 95 cents, or 1.15 percent, to settle at $83.90 a barrel.

European equities hit a six-month closing high on Tuesday, lifted by energy companies after the price of oil rose.

GROWTH PICTURE IMPROVES

Euro-zone manufacturing picked up its pace last month, a business survey showed Tuesday, one day after better-than-expected U.S. and Chinese factory data increased optimism about the global economy and revived risk appetite.

“From a global perspective, the growth outlook looks solid and that’s feeding some appetite for risk,” Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said.

The MSCI world equity index (.MIWD00000PUS: ) rose 0.84 percent to 319.45, a whisker shy of the two year-high of 319.84 hit on October 25.

The FTSEurofirst 300 (.FTEU3: ) index of top European shares rose 0.52 percent to end the day at 1,093.65 points, its highest close since late April.

The euro traded above $1.40, buoyed by the European economic data. But traders doubted it would be able to stay above this level due to uncertainty over the extent of the Fed’s asset purchases. The Fed announcement is expected on Wednesday at the end of a two-day policy meeting.

Markets have priced in Fed asset buying of $100 billion a month for five months, in an attempt to bring long-term interest rates even lower and stimulate a sluggish U.S. economy.

SIZE MATTERS

The size of the Fed’s program is key. A larger-than-expected program of asset buying, which has been described as printing money, would weigh on the dollar and boost commodity prices, while a smaller round of purchases could curb investors’ appetite for risk.

On Wall Street, the Dow Jones industrial average (.DJI: ) rose 64.10 points, or 0.58 percent, to end at 11,188.72, while the Standard & Poor’s 500 Index (.SPX: ) gained 9.19 points, or 0.78 percent, to 1,193.57. The Nasdaq Composite Index (.IXIC: ) climbed 28.68 points, or 1.14 percent, to close at 2,533.52.

Most gains came from sectors expected to benefit from a rebalancing of power in the U.S. Congress. Among those expected to thrive if Republicans regain control of Congress are the health insurers, a sector hurt by the Democrats’ push to reform healthcare. Republicans have vowed to repeal the healthcare reform law.

Prices of U.S. Treasuries climbed on talk about the size of the Fed’s expected bond-buying program. The benchmark 10-year U.S. Treasury note gained 10/32, with the yield at 2.592 percent.

On Monday, a Reuters/Ipsos poll found Republicans are poised to take control of the House, gaining at least 50 seats, but they are unlikely to win a majority in the Senate.

In foreign currency (Read more about trading foreign currency. trading, the euro rose 1.04 percent to $1.4034 from a previous session close of $1.3889.

Against the Japanese yen, though, the dollar was up 0.17 percent at 80.62.

Spot gold benefited from the dollar’s decline against a basket of major currencies. The price of the metal rose 0.38 percent to $1,355.90 an ounce.

(Reporting and writing by Walker Simon; Additional reporting by Angela Moon and Gertrude Chavez-Dreyfuss in New York and Natsuko Waki in London; Editing by Jan Paschal)

Stocks and oil rally; dollar falls as Fed meets