US stimulus hopes shore up markets

LONDON (AP) -- Growing expectations that the U.S. Federal Reserve will maintain its current policy stance gave stocks a boost Monday.

Concern that the Fed would start reducing the amount of financial assets it is buying has been the main factor behind the volatility that has gripped markets over the past few weeks.

Investors were spooked in late May when Fed chairman Ben Bernanke said the U.S. central bank might pull back on its aggressive support for the U.S. economy if indicators, especially hiring, improve.

Policymakers at the Fed, who will start a two-day meeting Tuesday to discuss the central bank's next steps, will be greeted by a run of fairly disappointing economic data and investors now think they will persevere with the current policy.

The Fed buys $85 billion in bonds every month as part of a campaign to keep interest rates extremely low. The aim is to encourage borrowing, spending and investing. Some investors worry that long-term interest rates could spike when the Fed pulls back, raising borrowing costs and threatening the economic recovery. Higher yields for government bonds have already started pushing mortgage rates up.

"We think it is too early for the Fed to change its monetary stance at this week's policy meeting," said Neil MacKinnon, global macro strategist at VTB Capital. "However, the markets will be expecting some clarification of the Fed's intentions in the light of recent market volatility."

In Europe, the FTSE 100 index of leading British shares was up 0.9 percent at 6,362 while Germany's DAX rose 1.5 percent to 8,252. The CAC-40 in France was 1.9 percent higher at 3,876.

In the U.S., the Dow Jones industrial average was up 1.1 percent at 15,232 while the broader S&P 500 index rose 1 percent to 1,644.

An unexpected improvement in a manufacturing survey around the New York region and news that most U.S. homebuilders are optimistic about home sales for the first time in seven years had little market impact. The surveys from the Empire State and The National Association of Home Builders are both considered by investors to be of secondary importance.

The meeting of leaders from the Group of Eight top industrial countries in Northern Ireland was on the radar but is not expected to yield much of interest to investors as the commentary in the run-up to the summit has been largely dominated by disagreements between Russia and the rest over war-riven Syria.

"With Britain chairing the discussions we can probably expect tax compliance and greater transparency at the forefront of the agenda, and little real impact on financial markets anticipated in the near term," said Brenda Kelly, senior market strategist at IG.

Earlier in Asia, Tokyo's Nikkei 225, the regional heavyweight, jumped 2.7 percent to close at 13,033.12, extending Friday's 2.4 percent gain. Hong Kong's Hang Seng added 1.2 percent to 21,225.90 while South Korea's Kospi shed 0.3 percent to 1,883.10. Mainland Chinese stocks were mixed.

One reason why Japanese shares did so well was renewed weakness in the yen following a recent rally — a lower yen makes the country's exports more competitive. The dollar was up 1.4 percent at 94.92 yen while the euro was steady at $1.3342.

Oil prices were up alongside equities, with the benchmark New York rate up 29 cents at $98.14 a barrel.