China boosts euro, makes stocks flying

08:05, May 28, 2010      

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The euro staged a broad rally and US stocks jumped 3 percent Thursday, after China said Europe remains a key investment market for its foreign-exchange reserves.

The People's Bank of China said a Financial Times report that Beijing was concerned about its euro-zone bond holdings was groundless.

The FT report had driven the euro to a near four-year low on Wednesday and cut short a rally in US stocks.

Stocks in Europe and emerging markets also jumped and crude oil prices jumped 4 percent as the perceived risk that China might change the composition of its foreign exchange reserves was reduced.

"Reports from the front suggested that investors might become frightened that China could do something drastic," said Douglas Peta, an independent market strategist in New York. "Getting some assurance that Chinese sale of European debts isn't imminent is making everyone feel better."

At the close of trade, the Dow Jones industrial average gained 284.54 points, or 2.85 percent, to 10,258.99. The Standard & Poor's 500 Index rose 35.11 points, or 3.29 percent, to 1,103.06. The Nasdaq Composite Index climbed 81.80 points, or 3.73 percent, at 2,277.68.

Equity markets shrugged off a report showing the US economy grew at a slower pace than previously estimated in the first quarter as business investment slackened.

The euro gained 1.67 percent at $1.237 while the dollar fell against a basket of major trading-partner currencies.

On Wednesday the euro collapsed 1.5 percent against the dollar after the Financial Times reported China's State Administration of Foreign Exchange (SAFE) was meeting foreign bankers because of concerns about its exposure to debt troubles in Europe.

SAFE, the arm of the central bank, manages China's $2.4 trillion in foreign exchange reserves -- the world's largest stockpile.

Crude oil prices posted their biggest two-day gain since mid-August, as a forecast for an intense Atlantic hurricane season fueled fears of disruptions in US supplies and spurred speculative buying. Oil had also risen more than 4 percent on Wednesday.

People's Daily Online / Agencies


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