The U.S. government cut its estimate for second-quarter economic growth to 1.8 per cent, down sharply from 2.4 per cent because of lower than predicted consumer spending.
While news of the weakness in the world’s biggest economy was disappointing, it was also positive for investors, who were rattled last week after Fed Chairman Ben Bernanke said the U.S. central bank would slow its bond-buying programme if the U.S. economy continues to strengthen. That programme has kept interest rates low and made stocks more attractive.
“This doesn’t put a new spin on the outlook but it certainly makes one wonder all the more about the Fed’s ‘new and improved’ outlook for 2014”, economists at DBS Bank wrote in a commentary.
European stocks posted slight gains in early trading. Britain’s FTSE 100 rose 0.4 per cent to 6,187.10. Germany’s DAX was marginally higher at 7,943.07. But France’s CAC-40 fell 0.1 per cent to 3,722.69.
Wall Street looked set for gains, with Dow Jones industrial futures rising 0.1 per cent to 14,844. S&P 500 futures gained 0.1 percent to 1,597.80.
In Asia, markets were also buoyed as interbank lending rates in China continue to ease after a pledge earlier in the week by authorities to shore up banks facing cash shortfalls.
“We expect the interbank rates will come down further in the coming weeks”, J.P. Morgan analysts Haibin Zhu, Grace Ng and Lu Jiang said in a research report. But they said that they didn’t expect the rates to fall to the level they were at previously.
The central bank had allowed rates that banks pay to borrow from each other to soar last week, part of an attempt by Beijing to clamp down on massive credit in the informal lending industry.
Fears of a credit crisis in the world’s second-biggest economy had contributed to a rout in global markets that ended when policymakers in China softened their stance with the promise to provide “liquidity support” if needed.
Japan’s Nikkei 225 jumped 3 per cent to close at 13,213.55 and Hong Kong’s Hang Seng gained 0.5 per cent to 20,440.08. South Korea’s Kospi surged 2.9 per cent to 1,834.70. Australia’s S&P/ASX 200 added 1.7 per cent to 4,811.30.
Benchmark oil for August delivery was up 57 cents to $ 96.05 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 18 cents to end at $ 95.50 a barrel on Wednesday.
In currencies, the Euro rose to $ 1.3028 from $ 1.3012 late on Wednesday in New York. The Dollar rose to 98.04 yen from 97.74 yen.