Shares jump on short war hopes

Shares jump on short war hopes

Stock markets are still fragile

Shares on the world's stock markets have surged because of hopes of a swift end to the conflict in Iraq.

Investors were closely following reports from the Gulf and their interpretation was that it would be a short war, ending in favour of the US.

In New York that view sent the Dow Jones index up 235 points to 8,522 - a rise of nearly 3%.

London's FTSE 100 index of leading shares finished the day up 95 points, or 2.5%, at 3,861 after its longest sustained rally since November 2001.

It was the seventh successive day of gains and lifted blue chip shares back to their level in mid-January.

In Frankfurt the German Dax put in an even stronger performance, rising more than 4% to 2,715.

And the French Cac ended up 96 points, or 3.4%, at 2,891.

The Dow Jones index of leading US shares also opened strongly and by 1950 GMT it was up 178 points, more than 2% at 8,465.

It seems likely this will be the eighth consecutive day of rises for the index, its longest winning streak since 2000.

Reversing the gains

Traders said the advance of US and British troops into Iraq, together with television pictures of Iraqi troops surrendering, was the reason behind the rise.

However, they warned that the market was still extremely fragile.

With Tokyo's stock exchange closed for a public holiday, equity dealing in the rest of Asia was lacklustre, with most markets edging up a handful of points in the wake of gains in New York.

The war in Iraq is the dominant factor for all stock markets at present, with market participants trying to decipher the latest news to assess how long the conflict may last.

Analysts said the current rises were based on hopes of a swift end to the war, but that a prolonged conflict could quickly reverse the gains.

Staying positive

"Few of our clients want to make any big bold bets on the sustainability of this rally," said Jonathan Wilmot, a global strategist at Credit Suisse First Boston (CSFB).

US and British troops advanced deep into Iraq on Friday, and took over important airfields in the western part of the country.

People will not make up their minds about the sustainability of this rally until they are able to take the temperature of the world economy

Jonathan Wilmot, CSFB

The first day of active hostilities on Thursday had proved less intensive than many had foreseen.

President George W Bush's warning on Thursday that the war might prove "longer than expected" is likely to keep traders on edge.

But traders said investors were focusing on the good news and the apparent early successes of US-led forces.

"It would appear that things are going well in Iraq and the market is reacting positively to that," said Craig Cummings, a partner at Cantor Fitzgerald brokers.

Sober US news

Mixed economic news from the US was overshadowed by war talk.

"This market is headline driven and economics don't seem to matter any more, it's all about sentiment," said one trader.

US consumer prices rose 0.6% in February and were up 3% year on year - the biggest monthly increase in consumer inflation since January 2001 and slightly higher than expectations.

But the core inflation rate - which excludes volatile energy and food prices - was up just 0.1% and 1.7% year on year.

Economists said the data would determine the longer term direction of the stock markets.

"People will not make up their minds about the sustainability of this rally until they are able to take the temperature of the world economy, once this war is no longer the focus," said Mr Wilmot.

The Turkish stock market, however, has slumped significantly, falling more than 7% on Friday.

Traders there are worried about the lack of a deal with the US on using Turkish airspace.

Billions of dollars of aid may depend on a deal being reached.