The blue-chip Dow Jones index rewrote the record books last night with the largest-ever one-day rise. The New York market soared in afternoon trading after benign economic data sparked an explosive and broad-based rally. The 257.36-point or 3.36 per cent rise to a closing level of 7879.78 far exceeded the previous daily record of 187 points on October 21st, 1987, two days after the Black Monday crash. Analysts said the rally in US stocks began with a technical rebound off the 7,600 level as many market players returned from the Labour Day holiday weekend.
But the buying spree rocketed after a report of weaker-than-expected business activity from the National Association of Purchasing Management. The data spurred the bond market and eased concern among traders of an interest rate rise in the near future.
Stock markets in Europe had opened strongly after markets in the Far East finally reached bottom. The Hong Kong market benefited from some bargain-hunting after the 10 per cent fall in the previous two days had brought the Hang Seng Index to a four-month low.
But it was not until the publication of the monthly report of the National Association of Purchasing Managers in the US that stock markets really took off.
The NAPM Index - one of the most keenly-awaited economic indicators - reflects purchasing levels by major American companies and the fall in the August index from 58.6 to 56.8 indicates a slowdown in the American economy. Analysts had expected a modest fall in the NAPM figure for August but the scale of the decrease took the market aback.
The enthusiastic reaction in the market reflects a view that the Federal Reserve is unlikely to increase its Federal funds rate this month, usually a precursor to an increase in official Fed rates.
Earlier, European markets were given a stimulus when the Hong Kong market staged a strong recovery after its recent heavy falls and dealers expect the Hong Kong market to consolidate further after the strong improvement on Wall Street.
The recovery came as new Hong Kong leader Mr Tung Chee-Hwa and a senior Chinese government spokesman moved to reassure investors the local bourse was sound.
Mr Tung said bargain hunters moved in as the index wavered around 13,000 points, despite five consecutive sessions of strong selling due to concerns about high interest rates which have accompanied chaos in most regional currencies and were likely to cap any immediate gains in the market.
European markets were also helped by retail sales figures which showed the Japanese economy still in poor shape. Comments from the Japanese finance minister, Mr Hiroshi Mitsuzuka, that the current dollar/yen exchange rate is in line with Japanese economic fundamentals also helped sentiment to improve.
The London market, which had been up 20 points before the NAPM announcement, encountered a surge of buying after the figures were disclosed and the FTSE closed up over 1.3 per cent with the index up over 81 points on 4951.9.
The Irish stock market took its cue from London and the market gained almost 1 per cent, with strong demand for most of the leading financial and industrial shares.
Continental markets also surged. In Frankfurt, the Dax closed its official trading session on 4047.37 but soared in after-hours electronic trading to close up almost 3 per cent on the day. The Paris market also reacted enthusiastically and gained over 3 per cent.
