World markets kick New Year off in style

World stock markets rallied strongly Friday on the first trading day of 2009 as New Year's optimism more than offset grim economic news from around the globe.

The FTSE 100 index of leading British shares closed up 127.62 points, or 2.9 percent, at 4,561.79, while Germany's DAX was 162.87, or 3.4 percent, higher at 4,973.07. France's CAC-40 rose 131.72 points, or 4.1 percent, to 3,349.69.

The perky New Year's tone followed through into the U.S. where the Dow Jones industrial average was up 145.76 points, or 1.7 percent, at 8,922.15 while the broader Standard & Poor's 500 index rose 14.40 points, or 1.6 percent, to 917.65.

"It is customary to greet the New Year with a surge of optimism. Past cares are buried as eyes are raised to more distant horizons," said Stephen Lewis, an analyst at Monument Securities.

Trading across the world was light though as many investors will not return to the markets until Monday. Modest trading volumes can exaggerate moves up or down.

Investors will be looking to Monday's session, when volumes are expected to be nearer normal, as a better barometer of market sentiment.

Friday's gains on Wall Street came despite further dismal U.S. manufacturing data. The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index fell to a 28-year low of 32.4 in December from 36.2 in November. Any reading below 50 indicates contraction and the bigger the difference from 50 the greater the contraction.

As well as the grim ISM reading, investors had other bad economic news to digest.

In Asia, Singapore said Friday its economy shrank by an annualized rate of 12.5 percent in the fourth quarter of 2008, while China's manufacturing sector, which accounts for 43 percent of the economy, contracted for a fifth straight month in December.

And in Europe, manufacturing activity contracted for the seventh month running in December for the countries using the euro, falling at its sharpest rate for at least 11 years, according to the monthly purchasing managers index for the euro-zone.

In Britain, house prices fell in 2008 at their fastest rate for at least 25 years, the country's biggest mortgage lender HBOS said. Elsewhere, the Chartered Institute of Purchasing and Supply reported that Britain's manufacturing sector, which accounts for around 15 percent of the total economy, suffered its second worst month since 1992 in December.

"It is unfortunate that today's headlines serve as a depressing reminder of the synchronous downturn under way in the global economy," said Neil Mellor, an analyst at Bank of New York Mellon.

After one of the worst years ever for global equities, many expect volatility to remain the name of the game for some time to come, especially as the first part of the new year will likely be dominated by mounting economic gloom and massive job losses.

Stock markets have historically started to recover around 6 months to 9 months before the economic activity data turns for the better. Many stock market observers think the markets should be pushing higher, rather than falling or trading largely flat, possibly by the middle of the year.

Earlier, Hong Kong's Hang Seng Index led the Asian markets that were open higher, vaulting 655.33 points, or 4.6 percent, to 15,042.81. More than half of Asian's markets, including Japan's Nikkei, remained closed.

Elsewhere in Asia, South Korea's Kospi added 2.9 percent to 1,157.40, Singapore's benchmark rose 3.9 percent, and Mumbai's Sensex traded 0.6 percent higher. Australia was modestly lower.

Oil prices rose further Friday, in conjunction with stock markets, with light, sweet crude for February delivery up $1.40 at $46. The contract rocketed on New Year's Eve to settle $5.57 higher at $44.60.

The dollar strengthened 0.2 percent to 90.95 yen while the euro was 0.4 percent lower at $1.3931.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.