US optimism buoys markets amid Spain bailout hopes

LONDON -- Hopes that the U.S. economy is past its recent soft patch combined with optimism over a Spanish bailout request to shore up financial markets Tuesday.

This week features key U.S. economic data that investors will monitor for signs of growth in the world's largest economy. The indicators will culminate Friday with the monthly nonfarm payrolls report, which often sets the market tone for a week or two after its release.

The monthly manufacturing survey from the Institute for Supply Management on Monday pointed to an improvement. Its main index rose sharply to above 50, a reading that signals growth. The index had been below 50 from June through August.

Andrew Wilkinson, chief economic strategist at Miller Tabak, said it's rare that the survey turn around so quickly and said it could have been influenced by a strong rise in stock markets.

"We make no bones about the fact that much of the developed world remains in contraction," Wilkinson said.

Investors nevertheless started the new month in relatively optimistic mood, adding to Monday's gains.

In Europe, the FTSE 100 index was up 0.1 percent at 5,827 while Germany's DAX rose the same rate to 7,336. The CAC-40 in France was also 0.1 percent higher at 3,438.

In the U.S., the Dow Jones industrial average was up 0.1 percent at 13,532 while the broader S&P 500 index rose 0.3 percent to 1,449.

The U.S. economy won't be the only point of interest this week _ developments in Europe have the potential to halt any rebound in sentiment.

The main worry at the moment relates to whether Spain will ask for a financial bailout amid concerns that the German government is reluctant to push a vote on the issue in its Parliament.

However, investors, particularly in the currency and bond markets, appear buoyed by the speculation that the Spanish government is preparing a request for help. Doing so will eliminate some market uncertainty.

"This has been the next big hurdle for a while, getting Spain back into a position when they can borrow in the markets at sustainable rates," said Craig Erlam, market analyst at Alpari.

The euro was up 0.4 percent at $1.2934 while the yield on Spain's 10-year bonds fell 0.17 percentage point to 5.69 percent.

In addition, investors will be closely monitoring developments in Greece as the country's government is in talks with its debt inspectors over the latest batch of austerity measures. If the inspectors refuse to sign off on the measures, Greece faces the prospect of not getting its next batch of bailout funds, a development that may lead to its exit from the euro.

Earlier, Asian trading was subdued as markets in Hong Kong, mainland China and India were closed for public holidays.

Japan's Nikkei 225 index shed morning gains to close 0.1 percent lower at 8,786.05 but Australia's S&P/ASX 200 gained 1 percent to 4,433 after the country's central bank cut its benchmark interest rate by a quarter percentage point in light of global growth concerns.

In the oil markets, benchmark oil for November delivery was up 15 cents to $92.63 per barrel in electronic trading on the New York Mercantile Exchange.