Irene fails to shock while Greeks bear gifts

So MUCH for Irene. US stock indices rose sharply last night after it became clear that the tropical storm caused far less damage than many had feared.

Global markets also rallied – along with oil – after a merger between two major banks in Greece gave investors a rare bit of encouraging news out of Europe.

And an unexpected surge in the figures for US consumer spending for July – which indicated the country’s economy was not falling back into recession – further boosted sentiment across global markets.

Greek equities jumped 14 per cent and its banking shares alone surged 29 per cent as the merger shrank the number of weak banks in the eurozone, reducing the chance of calls on the EU’s financial stability fund for recapitalisation.

The participation of the Qatar Investment Authority in the tie-up between Eurobank and Alpha Bank – the second- and third-largest banks in Greece – also showed that some foreign investors were beginning to see European assets as undervalued. The deal creates the largest bank in southeastern Europe.

“We’ll probably need to see greater policy action in the region, but the merger needs to be done and that’s why we’re seeing a pause in the recent selling pressure,” said David Ruff, portfolio manager at the Forward Select EM Dividend Fund in San Francisco.

Trading volume around the world was low, with London closed for a holiday and Wall Street recovering from Hurricane Irene. Light volume exacerbates stock moves, making them bigger or smaller than normal.

Wall Street’s Dow Jones industrial average was up 254.41 points, or 2.25 per cent, to close at 11,538.95 while the broader Standard & Poor’s 500 Index was up 33.29 points, or 2.83 per cent, at 1,210.09. The Nasdaq Composite Index was up 82.26 points, or 3.32 per cent, at 2,562.11.

The rise in US stocks was led by insurers. Consulting firm Kinetic Analysis predicted that the claims paid by insurers would be about $2 billion to $3n, far less than the $6bn the industry paid out after Hurricane Isabel struck the region in 2003.

Utilities companies also rose after it became clear their storm-related expenses would be lower than earlier estimates.

Duke Energy, which serves customers in the Carolinas, rose 1.3 per cent while New York’s biggest utility company, Consolidated Edison, also rose 1.3 per cent.

The New York Stock Exchange and other major US exchanges opened as usual yesterday after making extensive preparations over the weekend. At the NYSE, executives brought in dozens of beds so employees could sleep there to be ready for the opening bell.

European shares rose in a low-volume, cyclical-led technical bounce to start the week in the black, buoyed by the Greek bank merger news and the US economic data.

Adding to the positive sector sentiment, the European Commission said a fresh round of bank recapitalisations was not needed, dismissing comments from new International Monetary Fund head Christine Lagarde over the weekend.

By the close, the FTSEurofirst 300 index of top European shares had added 1.3 per cent