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World markets gain but Spain downgrade looms

LONDON -- Global markets rose Monday as investors cautiously welcomed the result of stress tests of Spain's banks and upbeat U.S. economic data and looked past the threat that Moody's might downgrade the country's debt rating to junk status.

The results of an independent audit of 14 Spanish banks were released after the market close on Friday and showed the lenders need an extra (EURO)60 billion ($77.6 billion) in capital. The figure is roughly as expected and well within the (EURO)100 billion in rescue loans that Madrid can get from fellow eurozone countries to help the banks.

Also helping stocks was a slight improvement in a survey of the eurozone's manufacturing sector. The so-called purchasing managers' index for September was revised up slightly from its preliminary estimate released a week ago, but remains at a historically weak level.

A similar report in the U.S. showed the country's manufacturing sector grew for the first time in four months, buoyed by a jump in new orders. The Institute for Supply Management, a trade group of purchasing managers, said Monday that its index of factory activity rose to 51.5 in September from 49.6 in August.

By the end of trading in Europe, Germany's DAX stock index was up 1.5 percent to 7,326.73 while France's CAC-40 rose 2.4 percent to 3,434.98. Britain's FTSE 100 rose 1.37 percent to 5,820.23 while Spain's Ibex was up 0.98 percent at 7,784.10.

Wall Street also opened higher _ the Dow was up 1.1 percent at 13,507.0 and the wider S&P 500 gained 0.89 percent to 1,453.50. Earlier, Asian indexes were mixed by the close.

The better news on manufacturing helped investors set aside concerns of a possible downgrade by credit rating agency Moody's of Spain's debt rating to junk status. The agency has the debt on review and is due to release its findings any day this week. Any cut in the rating would make Spain's debt non-investment grade.

That would hurt Spanish markets because many pension funds and banks would have to sell them from their portfolios and desist from buying them at auction. That, in turn, would force Spain to pay higher rates to borrow money, further hurting its finances.

In corporate news, shares in mining company Xstrata Plc rose over 3 percent after it recommended to shareholders the merger with Glencore Plc. The deal would create an industry behemoth with revenues of around $175 billion.

In Asia, markets in China, Hong Kong and South Korea were closed for public holidays. In Tokyo, Japan's benchmark Nikkei 225 index fell after a closely watched survey showed confidence in the economy weakening.

The Bank of Japan's "tankan" confidence index was minus 3, a worsening from the previous quarter's minus 1. The index is a percentage of the companies with a positive outlook versus those who see unfavorable conditions ahead, so a minus number means there are more pessimistic companies than optimistic ones.

The Nikkei 225 index shed 0.8 percent to 8,796.51. Toyota Motor Corp. lost 1.7 percent and Nishimatsu Construction Co. slid 4.2 percent.

Australia's S&P/ASX 200 was marginally higher at 4,388.60, with losses in some sectors offset by solid gains among big banks and resource shares. Trading was light due to a public holiday in parts of the country.

Benchmarks in Thailand, Taiwan and Indonesia fell. India rose.

Benchmark oil for November delivery was up 71 cents to $92.90 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 34 cents to finish at $92.19 per barrel on the Nymex on Friday.

In currencies, the euro rose to $1.2904 from $1.2855 late Friday in New York. The dollar edged up to 78.00 yen from 77.99 yen.

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Pamela Sampson in Bangkok contributed to this report.

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