Richard Drew, Associated Press
MILAN — Global stocks continued their rebound Monday on hopes that the recent sharp volatility in the markets has run its course following a run of stronger than anticipated economic data and after Google announced a $12.5 billion deal.
Though concerns remain over the state of the global economy and Europe's debt crisis, many investors think the recent sell-off has been overdone and are snapping up potential bargains.
"Some stability appears to be returning to markets .... but businesses remain wary that the U.S. government isn't doing enough to arrest its massive budget deficit and that European governments aren't doing enough to avert financial contagion from infecting the banking system," said Sal Guatieri, an analyst at BMO Capital Markets.
The calmer mood has been helped by last Friday's better than expected U.S. retail sales figures for July and news earlier that Japan contracted by an annualized rate of 1.3 percent in the second quarter of the year after the impact of a devastating earthquake and tsunami. The consensus in the markets was that Japan's economy would have shrunk by at least double that rate.
Sentiment in the markets was also boosted by the news that Google Inc. is buying cell phone maker Motorola Mobility Holdings Inc. for $12.5 billion in cash. It's by far Google's biggest acquisition and a sign the online search leader is serious about expanding beyond its core Internet business and setting the agenda in the fast-growing mobile market.
"After the last fortnight, it is a breath of fresh air to be talking about something other than sovereign debt issues," said Will Hedden, sales trader at IG Index.
In Europe, London's FTSE 100 closed up 0.6 percent at 5,350.58, while Germany's DAX rose 0.4 percent to 6,022.24. The CAC-40 in France ended 0.8 percent higher at 3,239.06.
In the U.S., the Dow Jones industrial average was up 0.9 percent at 11,372 while the broader Standard & Poor's 500 index rose 1.1 percent to 1,192.
Europe's debt crisis will likely return to the forefront of investors' thoughts Tuesday, when French leader Nicolas Sarkozy and German Chancellor Angela Merkel meet, and second-quarter eurozone growth figures are published.
"The Franco-German summit on Tuesday in Paris will be a major focus for financial markets this week, especially coming so shortly after what has been a very tumultuous week for France in financial markets," said Jan Dubsky, euro area economist at the Royal Bank of Scotland.
The meeting is a day after the European Central Bank revealed that it spent €22 billion ($32 billion) last week buying government bonds. Analysts think a large chunk of the money splashed out was spent driving down the bond interest yields of Spain and Italy, who had seen their borrowing costs ratchet up sharply in the preceding weeks.
The ECB's purchases were the biggest weekly amount the bank has made under the emergency measure, exceeding the €16.5 billion it laid out when it started buying Greek government debt in May, 2010.
The improving appetite for risk, evidenced by the more benign stock market conditions, was evident in currency markets too, with the euro up 1.1 percent at $1.4439.
And notably, the Swiss franc continued to fall on speculation that the Swiss National Bank will peg the currency to the euro. Swiss officials have hinted that further action could be taken, after liquidity measures, to correct the currency's "massive overvaluation" in recent trading. By late afternoon, the euro was 0.8 percent higher on the day at 1.1281 francs, having traded even higher earlier in the session.
In Asia, stock markets rose Monday as data showed the economy of earthquake-battered Japan shrank less than expected.
Japan's Nikkei 225 index closed up 1.4 percent at 9,086.41 while Hong Kong's Hang Seng index shot up 3.3 percent to 20,260.10.
Mainland Chinese shares gained for a fifth trading day on expectations the government announce new measures to support growth. The Shanghai Composite Index added 1.3 percent to 2,626.77 and the Shenzhen Composite Index rose 1.4 percent to 1,175.41.
In the oil markets, prices recovered alongside equities. The main New York contract was up $1.69 at $87.07 a barrel.
Pamela Sampson contributed from Bangkok.