Markets recover on Europe hopes, Fed comments

LONDON (AP) -- Markets clawed back some ground Monday as hopes for an increase in the size of the European bailout funds combined with dovish comments from Federal Reserve Chairman Ben Bernanke to lift investors' moods.

Last week, the optimism that has dominated trading this year was punctured by renewed concerns over Europe's debt crisis and a raft of downbeat economic indicators, particularly out of China.

Much of the attention this week will center on Friday's meeting of eurozone finance ministers. There's growing speculation that Germany is willing to accept an increase in Europe's bailout fund, the European Stability Mechanism, which is due to come into operation this summer.

Chancellor Angela Merkel conceded Monday that Germany was open to temporarily boosting the eurozone's financial firewall to (euro) 700 billion ($930 billion) by allowing the (euro) 200 billion in existing commitments run in parallel to the ESM.

Her suggestion represents a turnaround from Germany, which has so far insisted there was no need to increase the lending capacity of the bailout funds beyond the planned (euro) 500 billion, despite uncertainty over the ability of Italy and Spain to pay off their debts.

Markets responded positively to the suggestion, especially if it allows the International Monetary Fund to increase its commitment to supporting Europe's economies, too.

"However temporary or not, it may satisfy the needs of the IMF who have stated that they want to see Europe add more funds before they increase their resources, and in addition it is unlikely that Ms Merkel would need to return to parliament to try and obtain authority to increase the size of the German exposure," said Gary Jenkins, managing director at Swordfish Research.

An indication from Bernanke that U.S. interest rates will remain at their super-low levels for some time to come also helped shore up the U.S. market open. Bernanke said further employment gains will likely require more robust consumer and business demand. Investors interpreted that as a suggestion that the central bank is prepared to keep interest rates near zero unless the economy improves substantially.

In Europe, the FTSE 100 index of leading British shares closed 0.8 percent higher at 5,902.70 while Germany's DAX rose 1.2 percent to 7,079.23. The CAC-40 in France gained 0.7 percent to 3,501.98.

The euro was buoyant, too, reversing early losses to trade 0.4 percent higher at $1.3326.

In the U.S., the Dow Jones industrial average was up 0.9 percent at 13,201.06 while the broader Standard & Poor's 500 index rose 1.0 percent to 1,410.70.

Earlier in Asia, Japan's Nikkei 225 index rose less than 0.1 percent to end at 10,018.24 as the yen slipped against the dollar, helping the country's powerhouse export sector. Hong Kong's Hang Seng Index finished unchanged at 20,668.86.

Mainland Chinese shares were flat too -- the benchmark Shanghai Composite Index was less then 0.1 percent higher at 2,350.60 while the smaller Shenzhen Composite Index was unchanged at 952.76.

China will remain at the forefront of investors' attention. Last week, they got fidgety about the scale of the slowdown in China, the world's second largest economy. China's fortunes are important for the global economy as its sky-high growth levels over the past few years have helped cushion the blow from the financial crisis.

They will also be keeping a close watch on developments in oil markets, for fear that rising oil prices, which are near nine-month highs, could derail the global economic recovery. The benchmark New York rate was up 13 cents at $107.00 a barrel.

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