A man checks share prices as others walk by the electronic stock board of a securities firm in Tokyo on June 7, 2012. / AP Photo/Koji Sasahara
(AP) LONDON - Global markets rose on Thursday, boosted by China's decision to cut interest rates, speculation Europe is preparing to give Spain financial aid and hopes that the Federal Reserve will consider new support for the U.S. economy.
>China cut its benchmark lending rate by a quarter percentage point to 6.31 percent for the first time since 2008 to support growth in its cooling economy, the world's second-largest.
The move is the strongest sign yet that authorities in Beijing are determined to avoid a sharp slowdown. Chinese economic growth has been one of the pillars of the global economy in recent years, so the move boosted sentiment in financial markets worldwide.
Germany's DAX was up 1.8 percent to 6,204.29 by midafternoon while France's CAC-40 rose 1.2 percent to 3,095.53. Britain's FTSE 100 gained 1.8 percent to 5,482.58. Madrid's Ibex was up 1.4 percent, while its 10-year bond yield slumped to 6.15 percent from 6.30 percent before the bond auction results.
Wall Street rose on the open, with the Dow Jones industrial average gaining 1.3 percent to 12,543 and the S&P 500 rising 1 percent to 1,328.30.
Investors were also encouraged by reports that Spain may get financial aid, which would significantly ease tensions in European markets.
Spain's government cannot afford to rescue its banking sector but is reluctant to accept a full-fledged bailout from its eurozone partners, as that would mean giving up control over some of its domestic policies.
Investors hope that European officials will agree to a compromise solution - giving Madrid the money but reassuring it that it will not have to take harsh new austerity measures.
"There is speculation that EU officials are coordinating some form of support for Spain, especially for its banking sector, but details of what this will entail is lacking," said Mitul Kotecha, analyst at Credit Agricole CIB.
In the meantime, the hopes for a rescue have boosted Spain's bond markets, helping it raise money in a bond auction. Although its borrowing rate for 10-year bonds was higher than earlier auctions, it was lower than the rate international investors were demanding in the secondary bond market - where issued bonds are traded freely.
The improved market sentiment also helped the euro, which rose to $1.2618 from $1.2546 late Wednesday in New York
Later in the day, traders will be closely watching Fed Chairman Ben Bernanke's testimony before a congressional committee Thursday for any hints that the U.S. central bank is considering more monetary stimulus.
Hopes for strong action by the U.S. central bank were lifted by comments from Atlanta Federal Reserve President Dennis Lockhart, who said Wednesday that sustained weakness in job creation could justify more action to support the economic recovery.
The Fed is believed to be considering a third round of "quantitative easing," or purchases of Treasury bonds to try to lower long-term interest rates and encourage borrowing. Traders have speculated that a third round, QE3, is under consideration.
The Fed could also continue its "Operation Twist" program, under which it sells shorter-term securities and buys longer-term bonds to keep their rates down. The current Operation Twist is set to expire at the end of this month.
"Investors will try to get a hint from him whether Bernanke is going to roll out QE3 or just extend Operation Twist or some other kind of hybrid policy," said Jackson Wong, vice president at Tanrich Securities in Hong Kong. "But there will be something. If he hints at nothing, the markets might take it negatively."
Earlier in Asia, stock indexes had closed higher. Japan's Nikkei 225 index added 1.2 percent to 8,639.72, Hong Kong's Hang Seng gained 0.9 percent to 18,678.29 and South Korea's Kospi index jumped 2.6 percent to 1,847.95.
Australia's S&P/ASX 200 climbed 1.3 percent to 4,108.60. Benchmarks in New Zealand, Taiwan and Indonesia also rose, but those in mainland China and Singapore fell.
Benchmark oil for July delivery was up $1.80 to $86.82 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 73 cents to settle at $85.02 in New York on Wednesday.
The dollar rose to 79.69 yen from 79.18 yen late Wednesday in New York.