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World stocks close out bumper 2009 solidly

Published:Sunday | January 3, 2010 | 12:00 AM

World stocks mostly edged higher Thursday as traders headed into the long New Year holiday weekend in a fairly upbeat mood, following a nine-month bull run that has seen many markets advance over 50 per cent since March.

In Europe, the FTSE 100 index of leading British shares closed up 15.02 points, or 0.3 per cent, at 5,412.88.

That meant it closed out the year 22 per cent higher but the decade down 22 per cent.

Meanwhile, France's CAC-40 ended its shortened session less than a point higher at 3,936.33, finishing the year up around 23 per cent but the decade 35 per cent lower.

Germany's DAX was closed after ending 2009 on Wednesday on a fairly downbeat note - 0.9 per cent lower at 5,957.43. The DAX ended the year around 24 per cent higher but the decade down 14 per cent.

And on Wall Street, US stocks were closing out the year steadily - the Dow Jones industrial average was down 5.44 points, or 0.1 per cent, at 10,543.07 soon after the open while the broader Standard & Poor's 500 index was up 0.9 point, or 0.1 per cent, at 1,127.32.

If they finish at those levels, the Dow will end up around 20 per cent higher on the year while the S&P 500 will finish nearly 25 per cent up. And over the decade, the S&P would end up 23 per cent lower, way more than the Dow's 8.0 per cent decline.

impressive gains dwarfed

The impressive gains in Europe and the US this year have been dwarfed by many markets in Asia, including China's Shanghai index and Hong Kong's Hang Seng, which rose 0.5 per cent and 1.8 per cent Thursday to finish the year at 3,277.14 and 21,872.50, respectively.

Over the year as a whole, the Shanghai index advanced 80 per cent while the Hang Seng rose more than 50 per cent, indicative, many observers say, of the continued solid economic growth recorded in China despite the recessions elsewhere.

Big annual gains were visible elsewhere in Asia, including on Japan's Nikkei 225 stock average, which ended the year Wednesday 19 per cent higher at 10,546.44.

Stocks around the world have rallied hard since March's lows - the Dow and the S&P 500, for example, have surged more than 60 per cent since then - as investors grew more optimistic about the global economic recovery after central banks and governments pushed through extraordinary policy measures to mitigate the deepest recession since World War II.

A year ago, doom and gloom dominated sentiment in the markets as the financial crisis brought a number of institutions to their knees, most notably Lehman Brothers, and stoked talk of a 1930s-style depression. The global recession was harsh and unemploy-ment did spike up sharply but the downturn did not prove to be as severe as many observers thought just a year ago.

"A pretty good year then, compared to what many of us thought it might be," said Howard Wheeldon, senior strategist at BGC Partners.

Much of the optimism that began to appear in March appears to have been merited, as most of the world's leading economies have returned to growth, albeit at fairly subdued levels.

The concern for stock market investors for 2010 is whether the rally has gone as far as it can in light of the likely economic conditions. With governments set to rein in their deficit spending and the central banks poised to start raising interest rates and withdrawing their big liquidity injections, many investors worry that the economic recovery will come to a grinding halt.

rampant Fluctuations

Fluctuations have been seen across all markets over the year.

For example, after an early year retreat, the price of a barrel of oil has doubled over 2009. By mid-afternoon London time, benchmark crude for February deliver was up a further 55 cents at US$79.83.

There have also been big fluctuations in currency markets over the year, but many of the exchange rates are ending the year more or less where they started. The prevailing trend during the year was related to risk appetite - when investors were extremely downbeat, as at the start of the year the dollar was in demand, given its widely viewed status as a safe-haven currency, but when optimism returned they looked for potential rewards elsewhere.

By mid-afternoon London time, the dollar was up 0.3 per cent at 92.72 yen. Over the year, the dollar has traded in a fairly wide range between a 14-year low below 85 yen and above 100 yen.

Meanwhile, the euro was up 0.2 per cent at $1.4369. It, too, has fluctuated in a fairly wide range over the year, from below $1.25 to above $1.50.

In 2010, the more traditional interest rate factors are expected to play a bigger role in the currency markets. As 2009 ends, the dollar has enjoyed a year-end rally as investors believe the US Federal Reserve will start raising interest rates from their current record lows sooner than many of its peers, meaning that a dollar will yield more.

Concerns about the level of borrowing in a number of euro zone countries, particularly Greece and Ireland, have also weighed on the euro recently, while renewed deflationary concerns in Japan have weighed on the yen.