Dollar surge into 2009

With US and European markets coming together, global stocks surged into the new year as investors hoped that the more aggressive government policies can steady a shaky global economy.

The steps in equities were a sign of broken investors who saw the worst economy since the 1930’s and the sign came even if there were news of a worldwide contraction in the manufacturing sector.

Investors are putting aside the bad news, pushing the Dow Jones industrial average up a huge 258 points or 2.94 percent.

"We're seeing some New Year optimism," said Andre Bakhos, president of Princeton Financial Group, in Princeton, New Jersey. Global stocks as measured by the MSCI world index .MIWD00000PUS were up 2 percent.

But still the economic backdrop wasn’t that comforting. Many factories in India, China and Eastern Europe joined the US in cutting output and jobs in December. This is another sign that recession is also being felt by emerging markets.

According to the Institute for Supply Management, US manufacturers had their worst December since 1980 as new orders dropped to a record low.

Euro experiencing the downturn

In Europe, the industry group’s index had a record low. This was blamed to a deepening recession on the continent and pushed the investors back into dollars and out of the euro.

"It casts an even darker shadow over the state of the euro zone economy," said Bank of America economist Gilles Moec.

"We think it is consistent with a major contraction in GDP both in the fourth quarter of 2008 and the first quarter of 2009 -- probably something like a contraction of a full percentage point in both quarters."

The euro was down 1 percent against the dollar at $1.3854.

Analysts are expecting a large stimulus package from President-elect Barack Obama’s administration. Still, a few expects the benefits to be immediate.

While the going was good for stocks, U.S. Treasury debt prices plunged in a sign investors' dislike to risk was easing a bit after a year in which $14 trillion was lost in world stock markets.

Benchmark 10-year notes were down 1-25/32 and yielding 2.41 percent, up 19 basis points from Wednesday but still not too far above a 50-year low of 2.04 percent set in December.