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Rally follows better than expected figures

Markets relieved by China growth; shrug off IMF world downgrade

China economyChina reported its weakest growth for 24 years but figures overnight were better than expected, providing some relief to world markets.

The economy did not slow as much as some forecasters had predicted and the news helped Asian markets shrug off the International Monetary Fund’s downward revision for world growth this year from 3.8% to 3.5% on the back of weakness in Europe and Japan.

China’s growth of 7.3% was a touch higher than expected, helped by stronger retail and manufacturing figures. Even at this rate China’s GDP is 10 times larger than in 1990.

“It seems the economy is in better shape than expected,” said Darius Kowalczyk, a senior economist at Credit Agricole in Hong Kong. “Growth did slow in annual terms, but year-on-year growth stabilised and momentum also improved towards the end of the quarter.”

The Nikkei rose 1.7%, leading the markets higher across the region but as the yen slipped the Bank of Japan is expected to reaffirm its bond-buying campaign.

European shares are expected to open firmer for a second day ahead of the European Central Bank almost certain to announce its own loosening of monetary policy  in order to head off deflation. Forecasters are predicting a €600 billion bond buying programme.

The issue is dividing the eurozone, with Germany in particular likely to demand compromises as it is not facing deflationary pressures.

A Reuters poll of money market traders found the median expectation was for a package worth 600 billion euros, though most also felt that would not be enough to bring inflation up to target.

Indeed, many in the market would prefer an initial target of at least 1 trillion euros or, even better, an open ended commitment to buy as much as necessary to get inflation higher.

Germany’s main index rose to an all-time high while the FTSEurofirst index of 300 leading European shares hit a seven-year peak.

Spain’s 10-year government bond yield hit a new low of 1.47% and Italy’s benchmark yield fell as low as 1.62%.

The euro was stuck at $1.1577 on Tuesday after hitting an 11-year low last week. The currency made more progress on the Swiss franc to reach 1.0184 francs, though that follows a 17% plunge last week.

Oil prices suffered a further blowas Iraq announced record production of the fuel.

Brent Crude fell 6 cents to $48.78 a barrel.

 

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