Optimism over US economy shores up markets

World stocks traded higher on Monday despite concerns over a cash crunch in China as investor sentiment remained buoyed by growing optimism over the United States economy.

However, with many traders already off for the Christmas break, volumes were low and are expected to remain so at least until the New Year.

Figures Friday showed the US grew at an annualised rate of 4.1 per cent in the third quarter of the year, up from the previous estimate of 3.6 per cent. The unexpected strength prompted International Monetary Fund (IMF) chief Christine Lagarde to say the Washington D.C.-based institution would raise its 2014 US growth forecast from the current estimate of 2.5 per cent.

"Sentiment was helped after it emerged the IMF said it will raise its outlook for the US," said Lee Mumford, a trader at Spreadex.

In data released Monday, the Commerce Department said consumer spending rose 0.5 per cent in November and core consumer prices rose 0.1 per cent from October for a subdued 1.1 per cent annual inflation rate.

In Europe, stocks opened higher and drifted upward. Shortly before the start of US trade, Britain's FTSE 100 index was up 0.7 per cent to 6,653; France's CAC 40 rose 0.1 per cent to 4,198; and Germany's DAX was up 0.7 per cent to 9,455.

US stocks appeared set for further gains after Friday's record close, with Dow futures up 54 points to 16,235, and the broader S&P 500 index futures up 9 points to 1,823.

Earlier in Asia, China's Shanghai Composite rose 0.2 per cent to 2,089.71 - its first gain in nine sessions - while Hong Kong's Hang Seng index rose 0.5 per cent to 22,921.56. South Korea's KOSPI rose 0.7 per cent to 1,996.89. Tokyo stock markets were closed for the Emperor's Birthday.

Stock markets have largely held their own despite worries over China's credit markets. Even though the Chinese monetary authorities injected more cash into the markets, the rate banks charge each other for seven-day loans spiked to 9.8 per cent at one point Monday, up from 4.3 per cent at the start of the month.

"The tightening of liquidity conditions in China heading into year end continues to attract some broader financial market attention," said Lee Hardman, an analyst at Bank of Tokyo-Mitsubishi UFJ.

Elsewhere, trading was fairly muted. In the currency markets, the euro was 0.2 per cent stronger against the dollar at $1.367 and the dollar fell 0.2 per cent against the yen to 103.91 yen. In the oil markets, a barrel of benchmark crude was 20 cents lower at $98.10.

- AP