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World stocks buoyed by easing Korean tensions

By Pan Pylas

Associated Press

Published: Tuesday, Dec. 21 2010 8:15 a.m. MST

South Korean currency traders work in front of a screen showing the Korea Composite Stock Price Index (KOSPI), left, and foreign currency rate at the Korea Exchange Bank headquarters in Seoul, South Korea, Monday, Dec. 20, 2010. Asian stock markets fell Monday amid investor unease as South Korea went ahead with a military drill on a frontline island despite threats of North Korean retaliation.

Kim hyun-tai, Yonhap) KOREA OUT, Associated Press

Enlarge photo»

LONDON — Global stocks rose Tuesday as easing tensions on the Korean peninsula boosted investors' appetite for risk, but the euro dropped after Portugal became the latest European country to be warned of a possible credit rating downgrade.

In Europe, the FTSE 100 index of leading British shares was up 54.86 points, or 0.9 percent, at 5,946.47 while Germany's DAX rose 57.15 points, or 0.8 percent, to 7,075.75. The CAC-40 in France was 39.23 points, or 1 percent, higher at 3,924.31.

In the U.S., the Dow Jones industrial average was up 25.74 points, or 0.2 percent, at 11,503.87 soon after the open while the broader Standard & Poor's 500 index rose 3.28 points, or 0.3 percent, at 1,250.36.

Scarce economic data and severe winter weather in Europe ahead of the Christmas break are keeping trading volumes low. But investors have been watching North Korea's apparent decision to avoid confrontation with South Korea despite accusing it of being "reckless" with its military drills.

That has helped shore up investors' appetite for risk — when geopolitical worries are on the rise, investors look for safe havens to park their cash. The dollar, the Swiss franc, bonds and gold are widely perceived to be safer assets than, say, the euro or stocks.

The euro initially garnered support from the easing of tension on the Korean peninsula as well as comments from China's vice premier Wang Qishan backing EU efforts to deal with the eurozone's debt crisis.

China, with its massive surplus, is awash with cash and its financial firepower can be used to prop up the bond prices of those countries considered to have shaky public finances.

"The market is likely to interpret today's discussion to mean that Beijing is fast-becoming a lender of the last resort," said Andrew Wilkinson, senior market analyst at Interactive Brokers.

Despite China's supportive comments, the euro has been dogged all day by a warning from Moody's Investors Service that Portugal could have its A1 rating reduced. It cited uncertainties over its "longer-term economic vitality" and concerns over the country's ability to access capital markets "at a sustainable price."

By mid afternoon London time, the euro was up 0.3 percent on the day at $1.3156. Just before the Moody's warning, it had been trading as high as $1.32.

"While continued support from China is a favourable development, on its own it will not be enough to prevent the eurozone sovereign debt crisis escalating," said Lee Hardman, a currency economist at The Bank of Tokyo-Mitsubishi UFJ.

Portugal is widely thought to be the most financially imperiled eurozone country now that Ireland and Greece have been bailed out by their partners in the single currency bloc and the International Monetary Fund.

Though concerns that Europe's debt crisis will claim another victim have diminished over the past few weeks, following the bailout of Ireland and news that the European Central Bank has been more active supporting bond markets, the ratings agencies continue to voice their worries.

Portugal, Spain and Greece have all been warned by Moody's that they could have their ratings cut, while Ireland's had its slashed by a massive five notches. Even Belgium was dragged into the spotlight when rival agency Standard & Poor's warned about its debt.

"Credit rating agencies are, as usual, way 'behind the curve' but are responding to jittery bond markets," said Jeremy Batstone-Carr, director of private client research at Charles Stanley.

Earlier in Asia, Japan's Nikkei 225 stock average closed up 1.5 percent to 10,370.53 after the Bank of Japan kept monetary policy unchanged at the current super loose setting. Exporters climbed, with Sony Corp. up 2.7 percent and Canon Inc. adding 1.6 percent.

Hong Kong's Hang Seng index added 1.6 percent to 22,993.86. South Korea's Kospi advanced 0.8 percent to 2,037.09 and Australia's S&P/ASX 200 gained 0.8 percent at 4,771.90. China's Shanghai Composite Index jumped 1.8 percent to 2,904.11.

Benchmark oil for February delivery was down 20 cents at $89.17 a barrel in electronic trading on the New York Mercantile Exchange.

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