Global stock markets rise on US Fed stimulus plan

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Global stock markets have risen after the US Federal Reserve moved to pump more money into the economy.

The Paris market rose 2.3%, while UK and German indexes closed up 1.5%. Wall Street ended the day 0.4% higher.

It followed the Fed's decision on Thursday to inject $40bn (£25bn) a month into the US economy.

But fears over the global economy persisted as the International Monetary Fund and European Central Bank denied they were in bailout talks with Spain.

Eurogroup finance ministers are meeting in Nicosia in Cyprus for talks on measures to end the current eurozone debt crisis.

On Friday, Jean-Claude Juncker, head of the Eurogroup, announced that the new eurozone rescue fund would be up and running by the end of October.

The European Stability Mechanism (ESM) - originally due to launch in July - would control up to 700bn euros ($920bn; £566bn).

The ESM is an essential part of a European Central Bank plan to buy bonds from indebted governments such as Spain and Greece in order to bring down their cost of borrowing.

Countries such as Spain would need to make a formal request to the ESM for help before the ECB could intervene.

However, IMF chief Christine Lagarde and an ECB spokesperson strenuously denied reports that they were in talks with Spain about a rescue: "I can assure you we are not," Ms Lagarde told reporters in Nicosia.

Mr Juncker added that there would be no decision on the next steps in Greece's EU and IMF bailout before the end of October.

However, there were indications that Greece may be given more time to pay its debts.

"Greece has already produced a huge effort but will have to continue to do so," Ms Largade said.

"The target when it comes to achieving debt sustainability is very high, so there are various ways to adjust. Time is one that needs to be considered as an option."

Start Quote

They're saying that the punch bowl, the fuel for the economy, isn't going away - it's going to be here as long as you need it”

End Quote Tony Fratto Hamilton Place Strategies
Federal Reserve action

The plan to buy up US mortgage debt will continue until further notice, the Fed said on Thursday. The central bank also kept interest rates at below 0.25%.

The aim is to reduce long-term borrowing costs for firms and households.

On Friday, Hong Kong's Hang Seng added 2.7% and Japan's Nikkei 225 rose 1.8%.

Investors hope the Fed's measures will revive growth in the US economy, the world's biggest and a key market for Asian and European exports.

The Fed's promise that the quantitative easing programme was open-ended and would continue until the US economy showed signs of recovery has bolstered confidence, said analysts.

"They're saying that the punch bowl, the fuel for the economy, isn't going away - it's going to be here as long as you need it," said Tony Fratto, managing partner at Hamilton Place Strategies, a policy consulting firm.

'Obstacles removed'

In a research note from HSBC, analysts said that the Fed "is trying to convey to financial market participants that they can count on low interest rates and accommodative monetary policy for a long time and not to expect a reversal of policy in reaction to modest improvement in GDP growth or in the unemployment rate".

Yields on Spanish and Italian bonds also fell, easing pressure on borrowing costs for the two heavily-indebted nations.

On Friday, Italy's 10-year borrowing rate fell under the 5% mark for the first time since March.

However, the depth of Spain's problems were underlined on Friday with official data showing that public debt has reached a record 75.9% of gross domestic product, fuelling doubts over the country's ability to manage its finances.

There was fresh speculation in the European media that the ECB and IMF would discuss a bailout for Spain during a meeting of finance ministers that took place in Cyprus on Friday.

However, at a news conference after the meeting, Ms Lagarde denied the suggestion. Earlier, an ECB spokesman said: "The reporting is unfounded. No negotiations are ongoing."

There were also suggestions that the meeting would discuss a bailout of Spain. However, any immediate decision looks unlikely after the country's economy minister said on Friday that the government was working on a new set of structural reforms.

Luis de Guindos said a new plan should be ready by the end of September. Olli Rehn, European commissioner for monetary affairs, added that the Spanish plan would have "very clear commitments and precise timetables".

'Across the board'

There have been growing fears about the global economy, with a weak recovery in the US and the continuing debt crisis in the eurozone.

US unemployment, which has topped 8% for three years, is likely to be a key battleground in the upcoming presidential elections.

The slowdown in China's economy, the world's second-largest and one of its biggest drivers of growth since the global financial crisis, has fanned those fears.

Prompted by these concerns, policymakers in these regions have been taking measures to try to spur a fresh wave of growth.

The Federal Reserve's announcement came days after the ECB announced its new unlimited bond-buying programme.

Meanwhile, China has cut its interest rates twice since June to bring down borrowing costs for businesses and consumers. Beijing has also lowered the amount of money that banks need to keep in reserve three times in the past few months to encourage further lending.

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