Stocks surged Monday, pushing the Dow back above the 9,000 level, as investors welcomed talk of a second US economic stimulus plan and credit markets continued to thaw.

The Dow added 413 points, or 4.7%, the Standard & Poor’s 500 Index jumped 4.8% and Nasdaq rose 3.4% as several leading tech stocks reported poorer than expected quarterly figures.

Happy days. Instead of fearing that the world was going to end (and being ably assisted by some breathless reporting and analysis), the US market now seems to be trying to shrug off the impact of the recession.

The weekly edition of the Barron’s financial paper (from the Wall Street Journal stable) had a cover last weekend suggesting that the sunnier outlook was justified with the paper claiming the recession might not be as bad as it seems.

Fancy basing a shallower recession on a boost to consumer spending from lower oil prices, inventory rebuilding and stronger exports. The world economy is slowing, US export growth is easing, consumer credit and consumer spending is down, despite lower oil prices, and unemployment is rising. Consumers do not spend more when unemployment rises and of course credit is much tougher to get in the US. It was a cover story long on conjecture and short on reality. American analysts have missed the downturn in consumer spending, credit and retail sales for the past three months.

What investors really liked was the easing credit markets (relative to what they were last week and the week before, of course) and signs of another spend, spend, spend package from the US Government, probably aimed at the first quarter of 2009.

In Europe, the Stoxx 600 Index had its best day since March 2007, rising 3.6% as all 18 major western European share markets rose. London’s FTSE 100 in London jumping 5.4%. Asian markets rose yesterday with the the Nikkei in Tokyo up 3.6% and the Hang Seng in Hong Kong 5.3%. Australia rallied 4.3% and South Korean shares bounced off a three-year low after the government announced a $US130 billion package of loan guarantees and capital injections.

Money markets saw a significant easing of the squeeze on lending with the key the three-month dollar Libor (London Interbank Offered rate) falling 0.36% to 4.06% per cent, the biggest drop since January. Another key indicator rate, the the overnight US dollar rate fell 0.16% to 1.51% – just above the Federal Reserve’s Fed funds rate of 1.5% and a sure banks are becoming more interesting in lending and not keeping their money on deposit at central banks in the US and Europe.

That was shown in the contraction in the so-called three-month dollar Libor over Overnight Index Swap rates – a key gauge of banks’ willingness to lend to each other. They narrowed sharply to less than 3%.

In the US the yield on the three-month Treasury bill overnight rose to 1.112%. against 0.82% late Friday. That’s better than the 0.20% and first time it topped 1% in more than a week.

All this confirms the easing, although fear remains.

Wall Street also rose after Fed chairman, Ben Bernanke gave support for another Government stimulation effort for the economy. He said before a House of Reps Committee: “with the economy likely to be weak for several quarters and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate.”

So happy days? Perhaps.

Tech majors Sun Microsystems and Texas Instruments both reported lower than expected profit figures for the quarter and the shares fell Oracle, another tech biggie, is buying back its shares in a capital management program that will cost $US8 billion.

All that cash to support a share price that has ‘only’ dropped 20% this year and spending cash at a time when it is in short supply. Google’s CEO admitted yesterday that the giant is being “cautious” with its spending as advertisers cut their budgets.

Peter Fray

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