Global markets rebound as OECD talks up European prospects

Stock markets are rallying today following yesterday's heavy losses, after the OECD ruled out a double-dip recession in Europe.

The OECD also said that in the west as a whole, activity is picking up more rapidly than it predicted late last year, although it warned that the turmoil in sovereign debt markets poses a risk to the recovery. US treasury secretary Timothy Geithner flew to Europe today to push for joint action to tackle the ongoing European debt crisis.

On Wall Street, the Dow Jones climbed more than 90 points to 10,138.60 in early trading, a gain of 0.94%.

The FTSE 100 in London climbed 117 points to 5057.70 by mid-afternoon, a rise of 2.38%. The feeling in the City was that shares may have fallen too far during the recent crisis, which saw the UK's leading index hit its lowest level in almost nine months on Tuesday, when it lost 128 points.

Germany's Dax was up 2.16% to 5792.50 this afternoon while the CAC 40 in Paris climbed 2.86% to 3426.72.

Ben Potter at IG Markets said: "Remorse almost looks set to be the watchword during today's session as dealers take stock of the recent sell-off and are perhaps left wondering if the whole thing is now looking a little overdone ... with some energy now taken out, there could well be an argument for a degree of consolidation."

Yesterday's heavy selling was prompted by escalating tension on the Korean peninsula, and the ongoing European debt crisis.

In Asia, Japan's Nikkei index closed 62.77 points higher at 9522.66, a gain of 0.66%, and Hong Kong's Hang Seng rose 1.1% to 19,196.45. The Indonesian stock market jumped 7.3% to 2696.78 while indices in Taiwan, Korea and Singapore rose more than 1%.

"Asian markets are also up, so maybe the Korean situation is being seen as a bit of a one day wonder," said Gary Jenkins at Evolution Securities. "Ironic, considering the influences that they have had on the market recently, that Greece and South Korea met on the football field last night. An honourable 2-2 draw, although I am not sure if Greece had any assistance from the rest of the EU."

The OECD's chief economist told Reuters that a return to recession is unlikely in Europe. He argued that the euro's recent slide, which makes eurozone exports cheaper, should help offset the impact of governments' austerity measures on economic growth.

The euro has lost about 14% against the dollar this year, and more than 10% against a trade-weighted basket of currencies.

Pier Carlo Padoan argued that governments need to get a grip on bulging deficits while also reforming pension systems, labour and other markets, and show they are working in unison to convince sceptical financial markets that their strategy is credible.

"Is there going to be a double-dip [recession] in Europe? I don't think so," said Padoan, who added that massive debts following the deepest global downturn in decades were "not just a European story", but one that Europe was about to tackle faster than others.

Eurozone exporters should benefit from rising foreign demand, especially in Asia, helped by the euro's weakening, he said.

"If you combine the two – high growth in Asia and a weaker euro – that could add quite a boost to European exports," said Padoan. "The weak euro, in the short- to medium-term, is a welcome development.

"In any case it would be good for the global economy if ... nominal exchange rates changed a little bit. The euro certainly has been overvalued for some time and the renminbi has certainly been undervalued for some time."