U.S. & World

LONDON (AP) ― World markets surged higher Tuesday as the uncertainty about who will be the next U.S. president neared an end and a leading U.S. investment bank told its clients in Europe to buy stocks after the savaging they have taken in the last few weeks.

The Dow Jones index of leading U.S. shares was up 256.47 points or 2.81 percent, at 9,576.30 even though investors know the next president will have his work cut out to improve the U.S.'s immediate economic prospects and that Inauguration Day is still more than two months away.

Britain's FTSE 100 index closed 196.22 points, or 4.4 percent, higher at 4,639.50, while Germany's DAX was up 251.20 points, or 5.0 percent, at 5,278.04. France's CAC-40 was 163.12 points, or 4.6 percent, higher at 3,691.09.

Most Asian stock indexes were more or less flat earlier, apart from Japan's Nikkei, which surged 537.62 points, or 6.3 percent, at 9,114.60 as the market played catch-up after being closed Monday, when most of Asia rose.

The rise in risk appetite, evidenced in Tuesday's stock market rally, took its toll on the dollar, which plunged 3 percent against the euro, which is now trading at $1.3012. The dollar has been seen as a safe haven asset during the last few weeks of the financial turmoil.

That renewed dollar weakness fed through into the price of oil, which is priced in the U.S. currency. It was up $6.93 a barrel to $70.84.

"It's very much a case that we are seeing risk aversion subsiding and the U.S. presidential election has probably added to a process already underway," said Ian Stannard, an analyst at BNP Paribas.

The willingness to take on additional risk has come even though investors know full well that whoever wins the election will have their work cut out to lift the U.S. economy out of recession. Further proof of the scale of the downturn in the world's largest economy came earlier with the news that factory orders fell 2.5 percent in September from August, much worse than the 0.7 percent drop analysts had predicted

"The next president is going to inherit the poisoned chalice of an economy entering a deep and prolonged recession and a soaring budget deficit that will rapidly reach levels not seen in a generation," said Paul Ashworth, senior U.S. economist at Capital Economics.

"Of course, this might also be a golden opportunity for the victor to turn things around and make his mark on history, much as Franklin D. Roosevelt did with the New Deal in the 1930s," he added.

European stocks have been aided by a note from Morgan Stanley recommending European investors to buy stocks and has reversed its "full house sell signal" of June 2007 to a "full house buy signal". It had been one of the first major investment banks to look for the stock market exit door last year.

European shares have also been boosted by the ongoing decline in interbank lending rates ahead of expected interest rate reductions Thursday from the European Central Bank and the Bank of England.

Both banks are expected to follow the U.S. Federal Reserve's lead and cut interest rates by at least half a percentage point, though there's growing talk that the Bank of England may reduce interest rates by as much as a full percentage point for the first time since four cuts of that size in 1992-3 when Britain's economy was last mired in recession.

Earlier, Australia's financial stocks improved after the Reserve Bank of Australia slashed rates for the third time in as many months, reducing its cash rate by a larger than anticipated 0.75 percentage points to 5.25 percent. That helped the S&P/ASX 200 index pare earlier losses to close largely flat.

Hong Kong's Hang Seng Index added 0.3 percent to 14,384.34 after fluctuating through the day, with bank shares up as lending conditions eased further.

South Korea's Kospi rose 2.2 percent, while benchmarks in Singapore and Shanghai fell.

In mainland China, the market dropped for a third day, led by mining and metals stocks. The benchmark Shanghai Composite Index slipped 0.8 percent to 1,706.7. Losers included China Shenhua Energy Ltd., the country's biggest coal producer, and Kailuan Clean Coal Ltd.

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