World Stocks Rally on Solid Manufacturing Data

World stocks rallied Monday after solid manufacturing surveys rekindled hopes of a strong recovery in the global economy and kicked off a busy week that could well set the tone in markets for a while to come.

In Europe, the FTSE 100 index of leading British shares closed up 58.89 points, or 1.1 percent, at 5,247.41 while Germany’s DAX rose 45.69 points, or 0.8 percent, to 5,654.48. The CAC-40 in France was 22.55 points, or 0.6 percent, higher at 3,762.01.

On Wall Street, the Dow Jones industrial average was up 99.91 points, or 1 percent, at 10,167.24 around midday New York time while the broader Standard & Poor’s 500 index rose 12.52 points, or 1.2 percent, to 1,086.39.

Much of the buying in Europe and the U.S. came after the Commerce Department reported that U.S. personal income and consumer spending in December rose by more than anticipated.

Those gains were extended after a closely-watched survey from the Institute for Supply Management showed the manufacturing sector grew in January for the sixth straight month to its highest level since August 2004. Its main index spiked to 58.4 from 54.9 in December — way above analysts’ expectations for an increase to 55.5.

Equivalent surveys for the eurozone, Britain and China also suggested rising industrial activity.

The gains on Wall Street will give investors some confidence ahead of a raft of potentially market-moving news over the week. Many of the world’s major stock markets have fallen between 5 and 10 percent over the last couple of weeks as investors worried that equity valuations following a ten-month bull run were not justified by the economic fundamentals.

That was particularly evident last Friday, when the euphoria surrounding better than expected U.S. economic growth figures did not last long — investors looked on the data with caution, arguing that much of the annualized 5.7 percent increase in gross domestic product was due to companies restocking following the end of the recession. After advancing strongly in the wake of the figures, Wall Street ended lower.

Despite the gains Monday, caution appears to be the watchword in the markets.

Philip Gillett, a sales trader at IG Index, noted that recent rallies in stock markets have proved unsustainable and added that the 10,000 level for the Dow will be closely watched this week.

“Any slides through here could be the catalyst for more aggressive selling,” he said.

There’s a lot of news this week that could prompt a potential turnaround.

On the economic front, investors have a raft of economic data to assess, culminating in Friday’s U.S. nonfarm payrolls report for January — three consecutive increases in weekly jobless claims data have soured the mood ahead of the report, which often sets the stock market tone for a week or two.

Greece’s debt crisis will also remain in the spotlight, particularly on Wednesday, when the European Commission is set to give its view on the Greek government’s plan to bring borrowing under control over the coming few years. Indications Monday suggested that the Commission will give cautious support to the deficit reduction plan.

On the following day, the European Central Bank president Jean-Claude Trichet will no doubt be pressed to give his opinion on Greece’s debt problems in his monthly press conference after the bank’s latest interest rate decision.

On Thursday, both the ECB and the Bank of England are expected to keep their benchmark interest rates unchanged at the historic lows. However, the Reserve Bank of Australia is expected to raise interest rates again by a quarter point on Tuesday, although all eyes will be on whether it indicates a pause.

Corporate earnings statements will likewise be watched closely, particularly in London, where five of the biggest companies by market value will issue their latest trading updates, including pharmaceuticals company Glaxo SmithKline PLC and mobile phone operator Vodafone PLC.

However, oil companies could well end up garnering the most interest around the world. Exxon Mobil Corp. kicked off the oil companies’ reporting season positively Monday and its share price rose 2 percent.

Earlier in Asia, Japan’s Nikkei 225 stock average fluctuated before closing up 0.1 percent at 10,205.02 while South Korea’s Kospi rose 0.3 percent to 1,606.89, helped by news that exports surged in January, posting their biggest gain in more two than decades.

Hong Kong’s Hang Seng index rebounded from its early fall to finish 0.6 percent higher to 20,243.75.

In China, the upbeat manufacturing survey was taken as more evidence the government will maintain its efforts to keep a lid on growth and inflation. Shanghai’s key index fell 1.6 percent to 2,941.36. Markets in Australia, Singapore and Taiwan also lost ground.

Oil prices made solid gains after the U.S. data, with benchmark crude for March delivery up 73 cents at $73.62.

The dollar was up 1.1 percent at 90.86 yen while the euro rose 0.3 percent to $1.3906.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

2/1/2010 11:51 AM PAN PYLAS, AP Business Writer LONDON