Portugal Colonial - Stock markets rally on New Year boost

While 2022 was painful for investors, there is a fear that this year could be worse, with International Monetary Fund chief Kristaline Georgieva warning a third of the global economy could slip into recession.

Yet London jumped two percent as traders returned from a holiday weekend to play catch-up with Frankfurt and Paris, which logged gains on both Monday and Tuesday.

- Starting 2023 with a bang --

"UK shares kicked off the New Year with a bang despite gloomy predictions from the head of the IMF that one third of the global economy will be hit by recession this year," said AJ Bell investment director Russ Mould.

London's heavyweight energy sector was boosted by recent oil-price gains, although crude futures fell Tuesday.

Investors' eyes remain on China, where the swift removal of most zero-Covid measures has sparked a massive surge in infections that has filled up hospitals and left crematoriums overloaded.

China's new outbreak has fanned fresh concerns for the economic outlook as businesses are being forced to shut down, after having already been battered by the strict containment measures put in place for almost three years.

However, after a negative start to the day, Asia's markets shifted higher with the gains spilling over into Europe.

Analysts said infections may have already peaked in major cities including Beijing, where activity is picking back up.

But there are fears that travel over the Lunar New Year holiday at the end of the month could see cases spread to the countryside and further impact the economy.

Hong Kong stocks rallied on hopes for the city's economy ahead of an expected reopening of the border with China next week, while there were also gains in Shanghai, Taipei, Manila and Jakarta.

- Bracing for rate hikes -

Investors are now bracing for another series of central bank rate hikes in the early months of the year as policymakers battle decades-high inflation.

The sharp increase in borrowing costs last year was a key reason for the major pain suffered by equity markets as traders contemplated the end of years of cheap cash.

The Fed and others have suggested they will slow their pace of increases, but they are tipped to take rates higher than previously expected and not start to cut until later in the year or even 2024.

Friday's release of US jobs data will be closely followed for an idea of how the Fed will move next, with a strong reading likely to put pressure on the bank to keep lifting for some time.

In foreign exchange, the yen extended gains to hit 129.52 per dollar -- its highest level since June -- after a Bank of Japan policy shift hinted at the country finally seeing a rate hike.

The dollar rallied against the euro and pound, rebounding from losses in December following the festive break.

- Key figures around 1130 GMT -

London - FTSE 100: UP 2.0 percent at 7,598.12 points

Frankfurt - DAX: UP 1.3 percent at 14,254.34

Paris - CAC 40: UP 1.2 percent at 6,676.32

EURO STOXX 50: UP 1.4 percent at 3,909.23

Hong Kong - Hang Seng Index: UP 1.8 percent at 20,145.29 (close)

Shanghai - Composite: UP 0.9 percent at 3,116.51 (close)

Tokyo - Nikkei 225: Closed for public holiday

New York - Dow: DOWN 0.2 percent at 33,147.25 (Friday close)

Dollar/yen: DOWN at 130.70 yen from 130.80 yen on Monday

Euro/dollar: DOWN at $1.0538 from $1.0667

Pound/dollar: DOWN at $1.1945 from $1.2046

Euro/pound: DOWN at 88.24 pence from 88.44 pence

West Texas Intermediate: DOWN 1.1 percent at $79.44 per barrel

Brent North Sea crude: DOWN 1.0 percent at $85.02

burs-rfj/bcp/lth

A.P.Maia--PC