World interest rates on the rise

WORLD stock markets shrugged off last night's rise in US interest rates with widespread relief that the American Federal Reserve had limited the rise to a quarter of a percentage point.

However, the quarter-point lift to 1.25% is the start of a gradual rise in rates around the world, said Bank of England Governor Mervyn King who has already signalled that rising housing prices will mean higher borrowing charges in the UK sooner rather than later.

'It's a synchronised world recovery. The world interest rate cycle has turned,' said King. 'It's a much more favourable background against which to set economic policy but it's one in which it's not surprising that around the world people see interest rates gently rising.'

Despite that, few believe the European Central Bank will move its rates when it meets later today. With a sluggish European economy, the key ECB rate has been stuck at 2% for the last 12 months. The Bank of England monetary policy committee meets next week.

On Wall Street last night the Dow Jones Industrial Average traded up 22.1 points at 10,435.50. The rate rise, the first in four years, was widely-flagged.

In Tokyo, stocks similarly shrugged off the rise. The Nikkei rose after publication of the Bank of Japan's quarterly business report - the 'tankan' - which showed companies there are strongly optimistic about business conditions.