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US markets gain on expectation of third round of monetary easing

12 Sep 2012 Evaluate

The US markets closed higher on Tuesday, as investors speculated that the Federal Reserve will announce more stimulus plans and also anticipated a positive outcome of decisions by a German court. The Federal Open Market Committee on Wednesday begins a two-day session on methods to stimulate the economy, with the Fed at the very least expected to extend the record-low rate for Fed funds and at most to signal a third round of monetary easing. On the economy front, confidence among small businesses in the US climbed in August for the first time in four months as more companies anticipated a pickup in hiring and sales. The National Federation of Independent Business’s optimism index rose to 92.9 from a nine-month low of 91.2 in July. However, the government data showed that US trade deficit widened in July for the first time in four months as the global economic slowdown reduced demand for American-made goods. Total exports increased 2.8% to $183.3 billion and imports edged up 0.6% to $225.3 billion resulting in a deficit of $42 billion in July, up from the revised $41.9 billion in June, the US Commerce Department reported.

Meanwhile, Moody’s Investors Service has said that the United States stands to lose its top credit rating unless lawmakers reach an agreement to cut the amount of debt relative to gross domestic product in budget talks next year. The ratings company is putting Congress on notice that it has to at least put the car in a gear and start moving toward some type of negotiation to reach some sort of compromise.

In Europe, Germany’s Federal Constitutional Court is due to rule tomorrow on participation in the 500 billion-euro ($640 billion) fund. Germany’s highest court stated it would rule on whether to let the nation ratify the European Stability Mechanism, rejecting a lawmaker’s appeal that it postpone the decision after the European Central Bank commits unlimited funds to buy the bonds of troubled euro-area members. Besides, Greece is in focus after Prime Minister Antonis Samaras failed to convince coalition members on spending cuts demanded by lenders. The troika has demanded modifications in the austerity measures presented by the Greek government to receive the next tranche of the bailout. Separately, the Spanish Prime Minister Mariano Rajoy stated that the government has not decided if it needs a larger bailout from the euro zone.

The Dow Jones industrial average gained 69.07 points or 0.52% to close at 13,323.40. The Standard & Poor's 500 gained by 4.48 or 0.31 percent to 1,433.56 and the Nasdaq composite inched up by 0.50 points or 0.02 percent to 3,104.53.

The Indian ADRs closed mostly in green, HDFC Bank was up by 0.80%, ICICI Bank was up by 0.73%, Tata Motors was up by 0.57% and Infosys was up by 0.53%. On the other hand, Sterlite Industries was down by 0.16%.

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