World stocks rise on expectations of China easing

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by Laura Matovina

BANGKOK (AP) -- World stock markets rose Monday after a contraction in China's manufacturing boosted expectations of more stimulus to help the world's second-biggest economy.

An industry group said on the weekend that China's purchasing managers' index, which reflects manufacturing activity, fell to 49.2 in August from July's 50.1 on a 100-point scale. Numbers below 50 show a contraction. It was the group's weakest reading to date.

That fueled doubts about whether China has started to recover from its deepest economic downturn since the 2008 global financial crisis. China's economic growth fell to a three-year low of 7.6 percent in the second quarter. Corporate profits and other indicators have fallen despite government stimulus measures.

"The numbers were really bad, and many people believe that the government will have to do something to increase liquidity," said Francis Lun, managing director of Lyncean Holdings in Hong Kong.

European stocks opened higher. Britain's FTSE 100 gained 0.5 percent to 5,737.74. Germany's DAX added 0.4 percent to 6,997.37 and France's CAC-40 rose 0.5 percent to 3,428.97.

Markets in the U.S. will be closed for the Labor Day holiday.

Asian stocks were mostly higher. Japan's Nikkei 225 shed earlier gains to close 0.6 percent lower at 8,783.89. Hong Kong's Hang Seng added 0.4 percent to 19,559.21 and South Korea's Kospi climbed 0.4 percent to 1,912.71.

Australia's S&P/ASX 200 rose 0.3 percent to 4,329.70. In mainland China, the Shanghai Composite Index rose 0.6 percent to 2,059.15 and the smaller Shenzhen Composite Index jumped 1.9 percent to 854.76. Benchmarks in Taiwan and Indonesia also rose. Singapore and India were lower.

Many investors were also consoled by Federal Reserve Chairman Ben Bernanke's speech Friday in which he suggested that more central bank action was possible to support the U.S. economy.

Investors have been watching to see whether the Fed will buy more bonds to further lower long-term interest rates. The Fed has already undertaken two rounds of bond-buying, known as quantitative easing, in order to spur lending and growth.

"Although Fed Chairman Bernanke did not categorically state that a third round of quantitative easing or QE3 is on the cards ... the prospects are more likely than not for more Fed balance sheet expansion," analysts at Credit Agricole CIB in Hong Kong said in a market commentary.

Chinese property stocks jumped on speculation that the Chinese central bank will make more money available for investment. Shanghai-listed Poly Real Estate Group Co. surged 7.7 percent. Hong Kong-listed China Resources Land gained 4.8 percent.

But Japan's Sharp Corp. plummeted 6.1 percent after Kyodo News reported the struggling electronics maker was considering slashing employee bonus payments.

Benchmark crude for October delivery was down 18 cents to $96.29 a barrel in electronic trading on the New York Mercantile Exchange. On Friday, crude rose $1.85 to end at $96.47 per barrel.

In currencies, the euro rose to $1.2570 from $1.2560 late Friday in New York. The dollar rose to 78.36 yen from 78.31 yen.

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