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World stocks unfazed by ECB hike, Portugal plea

By Pan Pylas

Associated Press

Published: Thursday, April 7 2011 8:33 a.m. MDT

LONDON — Global markets were unfazed Thursday by the European Central Bank's first interest rate increase in nearly three years and Portugal's request for a bailout.

Both pieces of news had been widely predicted, although the timing of Portugal's bailout plea came earlier than anticipated given the country has no government.

There are even hopes that Portugal's long-awaited request may stabilize the situation within the 17-country eurozone for a while as fears of contagion to other countries, such as much bigger Spain, have diminished.

Those hopes have helped support the euro of late alongside the prospect of higher interest rates.

By mid-afternoon London time, the euro was trading 0.3 percent lower at $1.4289. On Wednesday, the euro hit a 15-month high of $1.4349 on the prediction that the ECB would raise borrowing costs. As a result, the decision to increase the main interest rate to 1.25 percent from 1 percent caused barely a whimper in the markets.

Higher interest rates would not necessarily mean that the euro would be backed if other central banks were also doing so. But with the U.S. Federal Reserve showing few signs that it's planning to change tack, the euro has been buoyant against the dollar.

Better-than-expected figures showing weekly jobless claims in the U.S. fell by 10,000 last week to 382,000 are unlikely to lead to much of a change in the Fed's thinking on their own. The monthly payrolls figures are more important when assessing the outlook for U.S. monetary policy.

The response in bond and stock markets over Portugal's bailout request has been equally relaxed. In Portugal, the bailout request has been met with an element of relief and the country's main stock index was up 1.5 percent, making it the best performer in the eurozone.

"Portugal's bailout appears to have been entirely priced into markets, as there was little reaction to the announcement," said Benjamin Reitzes, an analyst at BMO Capital Markets. "Attention will now turn entirely to Spain, though the decline in yields and credit default swap spreads so far this year suggest markets aren't concerned about contagion."

Elsewhere in Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 6,052 after the Bank of England kept its main interest rate unchanged at a record low of 0.5 percent. Germany's DAX was 0.3 percent higher at 7,235 while the CAC-40 in France rose 0.5 percent to 4,068.

In the U.S., the Dow Jones industrial average was up 0.1 percent to 12,432 soon after the open while the broader Standard & Poor's 500 index rose 0.2 percent to 1,338.

Earlier in Asia, Tokyo's Nikkei 225 index rose less than 0.1 percent to close at 9,590.93 even though the Japanese economy got a boost when the Bank of Japan, in a widely expected decision, kept its key interest rate unchanged at near zero and extended emergency loans to financial institutions affected by the earthquake and tsunami crisis.

Hong Kong's Hang Seng index was marginally down at 24,281.80, while South Korea's Kospi fell 0.2 percent to 2,122.14.

In the oil markets, the apparent stalemate in Libya, which accounts for a little under 2 percent of the world's daily oil production, kept oil prices high.

Benchmark crude for May delivery was up 12 cents at $108.95 a barrel in electronic trading on the New York Mercantile Exchange, a little shy of its 30-month high of $109.15.

Pamela Sampson in Bangkok contributed to this report.

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