Strong U.S. housing figures helped stocks remain in positive territory on Wednesday after an earlier bout of optimism in the wake of further stimulus measures from the Bank of Japan ran out of steam.
The market mood picked up after the National Association of Realtors revealed that sales of previously occupied homes jumped in August to the highest level in more than two years. Sales were up 7.8 percent at a seasonally adjusted annual rate of 4.82 million, the most since May 2010, when sales were fueled by a federal home-buying tax credit.
The existing home sales figures came hot on the heels of fairly solid housing starts figures for August and fueled hopes that the U.S. housing market is on the mend. A more robust U.S. housing market is considered a key requisite for the economy to rebound.
"The U.S. housing recovery is for real," said Sal Guatieri, senior economist at BMO Capital Markets.
The data helped solidify stock market gains in Europe and the U.S. after an earlier advance during Asian trading hours lost momentum.
In Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 5,878 while Germany's DAX rose 0.4 percent to 7,378. The CAC-40 in France was also 0.4 percent higher at 3,525.
On Wall Street, the Dow Jones industrial average was up 0.2 percent at 13,593 while the broader S&P 500 index rose 0.1 percent at 1,461.
Earlier, the focus in the markets was the Bank of Japan's decision to ease monetary policy to shore up fragile economic growth. The central bank said it was increasing its asset purchasing fund to 55 trillion yen ($700 billion) from 45 trillion yen to counter the strength of the Japanese currency. A strong yen makes it more difficult for Japanese companies to compete in international markets.
The Bank of Japan's move came days after the U.S. Federal Reserve revealed it will purchase an average of $40 billion a month in mortgage-backed securities until the economy shows significant improvement. The Fed's goal is to lower long-term interest rates and encourage more borrowing and spending. The Fed also said it plans to keep its benchmark short-term interest rate near zero until mid-2015.
Asian stock markets, which tend to respond favorably to actions targeting economic growth, rallied in the wake of the announcement with Japan's Nikkei 225 stock index closing 1.2 percent higher to 9,232.21, its highest close in more than four months.
Hong Kong's Hang Seng climbed 1.2 percent to 20,841.91 and Australia's S&P/ASX 200 added 0.5 percent to 4,418.40. South Korea's Kospi gained 0.2 percent to 2,007.88. The Shanghai Composite Index rose for the sixth straight trading day, up 0.4 percent to 2,067.83. The Shenzhen Composite Index gained 0.7 percent to 865.73.
The market impact of the Bank of Japan's move was short-lived, a possible sign that investors are getting stimulus-wary.
"We are seeing investors suffering from a bout of central bank fatigue, or perhaps it is a dawning realization that, even with policymakers dispensing cash left, right and center, there is still a slowing global economy to deal with," said Chris Beauchamp, market analyst at IG Index.
In the currency markets, the impact proved short-lived too.
The dollar was up only around 0.1 percent on the day at 78.93 yen. Meanwhile, the euro was more or less flat around $1.30. The euro has enjoyed a stellar few weeks as concerns over Europe's debt crisis have eased somewhat, largely on the back of a new bond-buying plan from the European Central Bank.
In commodity markets, the price for the benchmark oil contract was down $2.20 at $92.99 per barrel in electronic trading on the New York Mercantile Exchange. (AP New York) By: PAN PYLAS
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...........flash in the pan only.Martin
I was wondering with QE forever and buying mortgage backed securities if the FED was now actually in the business of holding the bank's toxic assets of foreclosed mortgages. Can anyone clarify? Thanks
anyone?
The housing recovery won't be "for real" until the banks get rid of the enormous inventory of foreclosed properties they currently keep on the books. They can afford to hold these properties primarily because of the ongoing 0% interest rates. (The rates are artificially maintained through LIBOR fraud and related trillion of $$ of interest-rate swaps, which create false demand for Treasury notes and bonds.) Thus it is likely that whatever "housing recovery" we are now seeing will be perennially tempered by existence of the bank-owned foreclosures, which will remain as long as interest rates stay where they are.
Given the size of the enormous US debt, the federal govt cannot afford to let rates go up; when this happens, the last sanctioned bubble of US Treasury notes and bonds will collapse. Since Treasuries represent the last remaining liquidity of the too-large-to-fail banks, they will collapse along with the bubble, and it is then you will see the forecloses housing inventory hit the market en masse. Only after that dust settles will a genuine recovery be possible.