LONDON: World stock markets rose sharply yesterday as fears about Dubai's debt problems eased after the emirate's government investment company said it was in talks to restructure $26 billion of debt, including $3.5 billion owed by property unit Nakheel, and said the remainder of its liabilities are on "a stable financial footing".

In Europe, the FTSE 100 index of leading British shares was up 84.89 points, or 1.6 percent, at 5,275.57 while Germany's DAX rose 108.50 points, or 1.9 percent, at 5,734.45. The CAC-40 in France was 75.1 points, or 2 percent, higher at 3,755.25.

Earlier in Asia, most major benchmarks rose by 1 percent, Japan's Nikkei index was the standout, closing up 226.65 points, or 2.4 percent, at 9,572.2.

US stocks are expected to power ahead at the open later. Dow futures were up 77 points, or 0.8 percent, at 10,411 while the broader Standard & Poor's 500 futures rose 8.7 points, or 0.8 percent, at 1,103.50. The Dow and the S&P 500 closed out November fairly solidly , ending up more than 5 percent on the month, the biggest monthly advance since July.

Debt from subsidiaries including Infinity World Holding, Istithmar World and Ports & Free Zone World will be excluded from the negotiations, Dubai World, one of the emirate's three main state-related holding companies, said in a statement. The cost to protect Dubai debt against default fell to the lowest since Nov 25.

The underlying reason behind yesterday's rally centered on Dubai as investors concluded that there will be limited contagion from the emirate.

"As investors continue to assess the potential fallout of the Dubai World debt default, and seem increasingly convinced that the impact won't be as drastic as had perhaps been thought at the end of last week, the major global equity markets continue to find support," said Ben Potter, research analyst at IG Markets.

Last week's announcement from Dubai World, a government investment company with some $60 billion worth of debts, that it wanted to postpone forthcoming debt payments until May sent shockwaves around financial markets.

But with the Dubai contagion fears dissipating, investors were once again focusing on the fundamentals ahead of a raft of economic news that could have a crucial bearing on how stock markets close out the year.

Friday's US nonfarm payrolls report for November will be key, the data often sets the tone in markets for a week or two. However, there are other important US releases due, including the Institute for Supply Management's surveys into the services and manufacturing sectors. The latter is released at 1500 GMT.

If investors conclude that the US economy is losing some steam, then that could well pave the way for an end of year bout of profit-taking following an eight-month bull run.

AP-Bloomberg News

(China Daily 12/02/2009 page17)