US shares extend rally on economic recovery confidence

October 07, 2009 12:55:22 PM

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Wall Street shares extended their rally for a second day Tuesday as Australia's decision to raise interest rates boosted confidence that a global economic recovery is taking root.

The blue chip Dow Jones Industrial Average lifted 131.50 points (1.37 percent) to 9,731.25 in final trades, a day after jumping by more than 100 points.

The technology-heavy Nasdaq composite added 35.42 points (1.71 percent) to 2,103.57 while the Standard & Poor's 500 index increased 14.26 points (1.37 percent) to a provisional close of 1,054.72.

The market opened on a bullish note after Australia on Tuesday became the first advanced economy to raise interest rates since the financial crisis.

The central bank announced a rise of 25 basis points to 3.25 percent, lifting rates off a 49-year low.

Although the United States is unlikely to raise rates in the near future as it still undergoes the painful transition of emerging from recession, investors saw the move as a key indication of global recovery.

"It is clear that there is a psychological bid in the market as the symbolism of the first rate hike from a G20 nation is trumping any negative considerations that go hand-in-hand with higher rates," said Patrick O'Hare of Briefing.com <http://briefing.com/>.

"That symbolism shines through in the fact that most equity markets around the globe have gained at least 1.0 percent in the wake of the rate hike announcement," he said.

The rate hike is being interpreted as "another confirmation that the world is back from the brink of economic disaster," O'Hare said.

Analysts at Charles Schwab & Co said the market also notched gains from a weakening dollar which lifted energy and commodity prices.

"Stocks are solidly higher again today, with energy and commodity issues leading the way after concerns over the dollar put the US currency under pressure," they said in a note to clients.

Economic recovery has prodded investors to pump their investments into riskier assets such as stocks and move away from the safe-haven dollar.