Stocks, commodities up as Australia raises rates

Stocks rose around the world and commodities rallied as Australia unexpectedly increased interest rates, the first Group of 20 nation (G-20) to do so since the recession began, amid evidence the recovery is gathering momentum.

The Australian dollar rallied against all 16 of the most traded currencies tracked by Bloomberg at 10.19 am in London. The MSCI World Index of 23 developed countries added 0.9 per cent, while futures on the Standard & Poor’s 500 Index gained 0.8 per cent. Copper advanced for a second day, rebounding from five straight weekly declines.

The Reserve Bank of Australia’s decision to boost the overnight cash rate target to 3.25 per cent from a 49-year low of 3 per cent followed the first expansion this year in US service industries. Manufacturing in emerging markets increased the most in the past three months since the second quarter of 2008, according to the HSBC Emerging Markets Index of data from purchasing managers.

“If there was a country that would be first to hike, then Australia was always a strong candidate,” wrote Jim Reid, a strategist at Deutsche Bank AG in London, in a report. “What it does remind us is how quickly things can change in both directions. The prospect of no rate changes, or no accidents, in the largest world economies over the next 12 to 18 months seems unlikely.”

Raw-material producers and banks led the second straight advance in Europe’s Dow Jones Stoxx 600 Index, which added 1.3 per cent. BHP Billiton, the world’s largest mining company, rose 1.7 per cent in London.

Banks rally
Credit Agricole SA advanced 3.2 per cent in Paris after Bank of America (BofA) Merrill Lynch Global Research raised France’s third-largest bank by market value to “buy” from “neutral.” A gauge of European banks climbed 1.9 per cent, the second- biggest advance among 19 groups in the Stoxx 600, after BofA Merrill raised the industry to “overweight,” saying “reasonable valuations offer the potential for re-rating.”

The rise in US futures indicated the S&P 500 and the Dow Jones Industrial Average may climb for a second day. Alcoa Inc is scheduled to report third-quarter results tomorrow, the first among Dow companies. Fairfield, Connecticut-based General Electric Co and Intel Corp of Santa Clara, California, are among the 45 S&P 500 companies that will release earnings in the next two weeks.

Emerging markets
The MSCI Emerging Markets Index rallied the most in two weeks, gaining 1.5 per cent. The Philippine Stock Exchange Index jumped 2.3 per cent and Russia’s Micex Index climbed 1.9 per cent. OAO Lukoil, Russia’s second-largest oil producer, rose 2 per cent and OAO GMK Norilsk Nickel advanced 2.7 per cent. Benchmark indices in Poland, Taiwan, Thailand and Indonesia gained more than 1 per cent.

Copper for delivery in three months rose 1.9 per cent to $6,030 a metric tonne on the London Metal Exchange. Aluminum, nickel and zinc also advanced.

Gold for immediate delivery gained 0.2 per cent to $1,019.28 an ounce, within 1.3 per cent of the record $1,032.70 reached in March last year.

Oil rose for a second day as the dollar’s decline bolstered the appeal of commodities as a hedge against inflation. Crude oil for November delivery rose 53 cents, or 0.8 per cent, to $70.94 a barrel on the New York Mercantile Exchange.

Kuwait, Saudi Arabia
Kuwaiti Oil Minister Sheikh Ahmed Al-Abdullah Al-Sabah said Tuesday that demand for crude will improve in the US and Europe next year. He also said Gulf states have no plan to move away from dollar pricing, denying a report in London’s Independent newspaper that oil producers and major consuming nations including China had discussed a shift from the dollar as the currency used to trade oil. Saudi Central Bank Governor Muhammad al-Jasser also denied the report.

The dollar pared declines after the denials.

The US currency had fallen as much as 0.8 per cent versus the yen and 0.7 per cent against the euro following the report, which cited unidentified sources. The Australian dollar rose 1.1 per cent against the greenback.

UK two-year gilts led declines in government bonds, with the yield rising 4 basis points to 0.75 per cent. British house prices increased for a third month, Halifax, a division of Lloyds Banking Group, said Tuesday.

A separate report from the Office for National Statistics showed manufacturing unexpectedly dropped 1.9 per cent to the lowest level since 1992.

The cost of protecting European corporate bonds from default fell for a second day, with the Markit iTraxx Crossover Index of credit-default swaps on 50 mainly high-yield companies dropping 15 basis points to 570, the lowest level in almost a week, JPMorgan Chase & Co prices showed.