Optimism on China counters woes in U.S. and Europe

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Optimism on China counters woes in U.S. and Europe
http://uk.reuters.com/article/marketsNews/idUKSP48879820090304

Wed Mar 4, 2009 11:26pm GMT By Daniel Trotta

NEW YORK (Reuters) - An improvement in China's manufacturing sector and hopes for further economic stimulus by its government lifted investor sentiment worldwide on Wednesday, even though the service sector in Europe and the United States continued to shed jobs.

An important measure of Chinese manufacturing improved in February for the third month in a row and factories restocked in anticipation of economic recovery, sparking a surge in oil prices and stock markets, which had been trading at 12-year lows.

A senior Chinese economic planning official said China would increase spending in areas such as infrastructure and manufacturing on top of the 4 trillion yuan ($585 billion) stimulus package unveiled in November.

"What is good for China is good for the world," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

A day after U.S. President Barack Obama said now might be a good time to buy stocks, equity markets around the world rallied, with China's main stock index surging over 6.0 percent and European shares closing up 3.9 percent.

The Dow Jones industrials .DJI rose 2.2 percent, even though General Electric (GE.N) fell 4.6 percent for its fourth day of losses as investors worried its ailing financial arm could threaten the whole company. The S&P 500 .SPX and Nasdaq .IXIC also climbed more than 2 percent. .N

The Chinese data also fuelled a 9 percent rise in oil prices, along with weekly data showing an unexpected decline in U.S. crude stockpiles.

Economic data out of Europe and the United States was not so kind.  
The Markit Eurozone Purchasing Managers Services Index showed that new business in the euro zone services sector, which accounts for the bulk of the economy, plummeted in February to a record low.

A report by ADP Employer Services showed U.S. private companies shed nearly 700,000 jobs in February, and the Institute for Supply Management said the U.S. service sector shrank further in February.

The ADP report suggested that hefty employment declines would come in the U.S. government's more comprehensive payrolls data due out on Friday.

"This is a slow U-shape recession," said Kurt Karl, chief U.S. economist at Swiss Re in New York. "We are still sinking. There is no sign of a bottom."

Dallas Federal Reserve Bank President Richard Fisher said economic stagnation was likely to continue despite huge monetary and fiscal stimulus, telling reporters, "We might have two years of (negative) growth in a row.

HELP FOR HOUSING

The U.S. housing market, which touched off the global financial crisis when banks overexposed themselves to bad mortgage debt, continued to show signs of distress.

Some 8.3 million U.S. mortgage borrowers are "under water," meaning they owe more to their lenders than their homes are worth. the Obama administration provided more details on Wednesday of its $75 billion (53 billion pounds) mortgage modification program aimed at helping people stay in their homes.

Elsewhere, there were indications the poor are getting poorer. The International Monetary Fund warned late on Tuesday the global financial crisis had shifted to the world's poorest nations and 22 countries might need as much as $25 billion in additional funds this year to cope with the downturn.
In France, official projections suggested the French economy would contract 1.5 percent this year and make this the country's worst postwar recession. The French budget deficit was ballooning to nearly twice normal European Union limits.

British Prime Minister Gordon Brown implored the United States to lead the world out of recession, telling a joint session of the U.S. Congress to resist protectionism and take advantage of international goodwill towards America after the election of President Barack Obama.

"You now have the most pro-American European leadership in living memory, a leadership that wants to cooperate more closely together, in order to cooperate more closely with you," Brown said. "There is no old Europe, no new Europe, there is only your friend Europe."

Reporting by Reuters bureaus worldwide; Editing by Leslie Adler

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