US share market boosted by bank's comments

24-08-2006

US stocks posted strong gains yesterday after the head of America's central bank eased fears about growing inflation in a speech to business leaders.

In a speech to the Economic Club of Chicago, the Federal Reserve chairman, Ben Bernanke, said that while rising energy prices could slow economic growth and prompt inflation in the short-term, the US economy had been able to withstand the increases.

"A significant increase in energy prices can simultaneously slow economic growth while raising inflation," said Mr Bernanke, adding that the economy had shown "underlying strength and resiliency" despite the "drag" from higher energy prices.

His comments fuelled speculation that the Federal Reserve may soon call a halt to its string of 16 interest rate rises over the last two years.

Investors reacted positively after the bank moved to quash inflation fears, with the Dow Jones industrial index rising above 11,000 points for the first time in more than a week, after share values rose by 1.83 per cent.

The Nasdaq also rose by 2.8 per cent, while Standard and Poor's 500 index saw its largest one-day gain in over two-and-a-half years after rising by 2.12 per cent.

European stock markets are expected to show strong gains today as well as a result of Mr Bernake's comments.

Investors were also buoyed by official US figures showing a fall in first- time claims for unemployment insurance benefits, while manufacturing growth in the north-east of the country exceeded inflation.

But some analysts have that it is too early to speak of a market recovery following weeks of turbulence in the world's share markets amid fears of rising inflation.



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