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Global Markets: Solidarity, Stability in U.S. Bonds Steady European Markets

Updated from 8:56 a.m. EDT

Global markets reacted positively Thursday to news of international support for U.S. retaliation against Tuesday's terrorist attacks.

Markets in Europe and across the Pacific Rim posted modest gains, although trading remains choppy and somewhat tentative in the wake of one of the most devastating terrorist attacks in history. Traders, who still appeared somewhat stunned by Tuesday's events, took in stride Thursday's news that the European Central Bank held interest rates steady.

In afternoon trading in Europe, all eyes were on the U.S., where bond trading resumed after a two-day hiatus. Bonds surged at the open, but gains moderated as trading continued. While brisk, trading appeared orderly, providing additional comfort to global markets. Futures markets are also suggesting the potential of more rate cuts by the Federal Reserve, possibly even before the next scheduled meeting in early October.

At London's close, the FTSE 100 posted a gain of 61.50, or 1.2%, to 4944, extending Wednesday's 2.9% gain.

Continental markets followed London's lead with moderate gains. In Frankfurt, the Dax moved 0.3% higher to 4348, while in Paris, the CAC 40 was largely unchanged at 4114.

Many insurance issues recovered a portion of Wednesday's losses, a result of concern over potential claims from the U.S. disaster. Near the close, Swiss Re gained more than 10%, and Munich Re moved higher by 5%. Both are large reinsurance concerns with operations in the U.S. Allianz was up 1.3%.

On Wednesday, analysts began to estimate the value of potential claims from the World Trade Center disaster and other calamities. Some estimates push $20 billion or more. While the claims are spread across many companies, reinsurance companies, which underwrite major catastrophe policies, are subject to the largest claims.

Berkshire Hathaway (BRK.A) Chairman Warren Buffett said Wednesday that his company is likely to pay 3% to 5% of all claims related to the disaster, although he did not estimate the total claim value. Berkshire owns General Re, a large reinsurer, and several other insurance companies.

Airlines were mixed into the close. Air France gained more than 2%, while British Airways dropped another 5.8%. Germany's Lufthansa lost 2.6%.

The European Central Bank met Thursday and decided, as expected, to leave rates unchanged. The ECB benchmark is currently 4.25%.

Trading in U.S. stocks on foreign markets was suspended again Thursday and will likely remain halted until U.S. exchanges reopen.

Asia Regains Footing

Markets in the Pacific Rim regained some ground Thursday, after a strong selloff in reaction to the disasters at the World Trade Center and Pentagon.

In Tokyo, the Nikkei finished largely unchanged, up nearly 3 to 9613. The market experienced wild swings -- nearly 250 points -- in early trading as shorts scurried to cover, but a lack of follow-through buying pushed the market lower. By midday, the market had settled at prior-day levels and traded listlessly to the close. On Wednesday, the Nikkei lost 6.6% to close below the 10,000 level for the first time since 1984.

Auto-company stocks remained weak for a second straight day, however, on fears of deteriorating U.S. and global economies. Toyota dropped 5.6%, while Honda lost 5.2%. In technology, Sony also continued its descent, losing 5.3%.

In Hong Kong, the Hang Seng gained 0.8% to close at 9569.

Other Asia-Pacific markets posted solid gains. Among the standouts, the Korean Kospi gained 5%. In New Zealand, the NZ Top 40 closed up 1.1% to 1894, while in Singapore, the Strait Times slipped 0.8% to 1439. In Australia, the All Ordinaries gained 0.6% to 3069.

Pan-Asia markets that were closed Wednesday took their lumps on Thursday. In Taiwan, the benchmark index lost 5.4%, while in Malaysia, the KLSE Composite dropped 3.8%.

While global markets are slowly regaining their footing, one firm reminded traders that the acts of terror against the U.S. created new, uncharted territory. Merrill Lynch Europe issued a report Thursday morning suggesting there is "no roadmap" for the current situation. They suggested that oil prices and the U.S. consumer would likely hold clues to the future direction of global markets.

Oil Steadies, Gold Weak

Crude prices steadied after significant volatility over the past two sessions. Oil spiked Tuesday on fears of increasing tensions in the Middle East. Prices slumped after the U.S. chose to be deliberate in its response to Tuesday's terror. In London, the October contract for Brent Crude gained 8 cents to $28.10 per barrel after early-morning declines. Gold also dropped slightly to $278.50 an ounce, down from $279.

The dollar was largely unchanged against the euro and other European currencies as trading remained thin.
Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to Chris Edmonds.

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