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September 23, 2017

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Hopes for more central bank help give a lift to global stock markets

MILAN/HONG KONG--World stock markets rebounded Friday on hopes that central banks will act to keep any political instability in Greece following weekend elections from destabilizing the global economy.

Uncertainty ahead of the Greek elections was weighing on sentiment, but it was limited by the prospect that central banks would intervene in markets in the event that political parties opposed to maintaining terms of the Greek bailout win the election on Sunday. Investors fear that reneging on its bailout terms would force Greece to leave the euro currency union, with uncertain consequences for financial markets and the global economy.

Britain's FTSE 100 rose 0.6 percent to 5,497 while Germany's DAX gained 1.1 percent to 6,205. France's CAC-40 rose 1.67 percent at 3,083.

In Asia, Japan's Nikkei 225 closed flat at 8,569.32, but Hong Kong's Hang Seng jumped 2.3 percent. Wall Street was on course to open higher, with Dow Jones industrial futures rising 0.4 percent to 12,652. S&P 500 futures gained 0.3 percent to 1,322.

The Bank of England and the UK government said they stand ready to offer up to 140 billion pounds (US$217 billion) in cheap loans to lenders that might have trouble raising money from credit markets, which could tighten up if the Greek elections' results spook investors.

The European Central Bank, meanwhile, continues to offer unlimited amounts of cheap short-term loans as well, even though its chief, Mario Draghi, has warned that Europe governments need to make bold decisions to shore up confidence in the euro.

Draghi said Friday the ECB has supported banks against the ongoing debt crisis with 1 trillion euros (US$1.26 trillion) in emergency credit to banks and that now it was the governments' turn to act.

Germany, however, is reluctant to accept any big moves that might cost Berlin more money, such as jointly issued eurobonds. Any solutions would be announced at a June 28 summit of world leaders.

Illustrating the urgency of the situation, Spain and Italy, which would be too expensive for Europe to bail out, have seen their borrowing rates jump higher this week. Should the two countries find it too expensive to finance themselves on capital markets, they would need money from Europe's bailout funds. The problem is their combined financing needs dwarf all the sums EU countries could provide.

Spanish Prime Minister Mariano Rajoy has asked EU leaders to push the European Central Bank to restart a program of purchases of government bonds that helped ease the country's borrowing rate last fall. The ECB, however, remains reluctant to do so, saying it would provide only temporarily relieve symptoms of underlying problems that need fixing by European governments.

In the U.S., speculation has grown that the U.S. Federal Reserve was preparing to pump more money into the economy to breathe life into its slackening recovery. Weak employment figures from the Labor Department showed hiring remains slow while inflation remains tame.

Elsewhere, benchmarks stock indexes in Singapore, mainland China and India closed higher. South Korea's KOSPI fell 0.7 percent.

Gold was worth US$1,625.50 an ounce at 1120 GMT, compared with US$1,620.10 late Thursday.

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