World markets surge as US goes to the polls

World markets pushed higher Tuesday as America went to the polls and a leading U.S. investment bank told its clients in Europe to buy stocks after the savaging they have taken in the last few weeks.

The Dow Jones index of leading U.S. shares was 203.66 points or 2.2 percent, higher at 9,523.49 even though analysts generally do not believe that one candidate will boost the beaten down market more than the other.

Britain's FTSE 100 index was 116.49 points, or 2.6 percent, higher at 4,559.77, while Germany's DAX was up 133.68 points, or 2.7 percent, at 5,160.52. France's CAC-40 was 92.30 points, or 2.6 percent, higher at 3,620.27.

Most Asian stock indexes were more or less flat, apart from Japan's Nikkei, which surged 537.62 points, or 6.3 percent, at 9,114.60 as the market played catch-up after being closed Monday, when most of Asia rose.

The U.S. presidential election is dominating sentiment in U.S. markets during Tuesday having been an afterthought for much of the last few weeks during the financial crisis.

Opinion polls on the eve of the vote showed that Democratic candidate Senator Barack Obama was leading Republican rival Senator John McCain, and that the Democrats could be on course to take a firmer grip on Congress.

"This election may have attracted a lot of attention in the media, but appears to have the lowest impact on financial markets of any election for many decades, doubtless a recognition that whoever is president, he will inherit a $1 trillion budget deficit and a banking system that has all but failed," said Marc Ostwald, an analyst at Monument Securities.

"Welcome to your worst nightmare, Mr. President," he added.

Also helping European stocks was a note from Morgan Stanley recommending European investors to buy stocks and has reversed its "full house sell signal" of June 2007 to a "full house buy signal". It had been one of the first major investment banks to look for the stock market exit door last year.

European shares have also been boosted by the ongoing decline in interbank lending rates ahead of expected interest rate reductions Thursday from the European Central Bank and the Bank of England.

Both banks are expected to follow the U.S. Federal Reserve's lead and cut interest rates by at least half a percentage point, though there's growing talk that the Bank of England may reduce interest rates by as much as a full percentage point for the first time since four cuts of that size in 1992-3 when Britain's economy was last mired in recession.

Jeremy Batstone-Carr, head of research at Charles Stanley, said Britain's FTSE in particular is rallying as it "gears up for a big cut" by the Bank of England, but added that it will likely peter out soon after the decision as the focus returns on fundamental economic data.

"We are heading into a deep recession and widespread earnings disappointment," he said.

Earlier, Australia's financial stocks improved after the Reserve Bank of Australia slashed rates for the third time in as many months, reducing its cash rate by a larger than anticipated 0.75 percentage points to 5.25 percent. That helped the S&P/ASX 200 index pare earlier losses to close largely flat.

Hong Kong's Hang Seng Index added 0.3 percent to 14,384.34 after fluctuating through the day, with bank shares up as lending conditions eased further.

South Korea's Kospi rose 2.2 percent, while benchmarks in Singapore and Shanghai fell.

In mainland China, the market dropped for a third day, led by mining and metals stocks. The benchmark Shanghai Composite Index slipped 0.8 percent to 1,706.7. Losers included China Shenhua Energy Ltd., the country's biggest coal producer, and Kailuan Clean Coal Ltd.

Oil prices rose, with light, sweet crude for December delivery declining $3.01 to $66.92 a barrel in European trade on the New York Mercantile Exchange.

The dollar rose 0.4 percent to 99.51 yen, but the euro was 1.9 percent higher at $1.2878.