Markets Soar Around World : Stocks: Dow climbs 17.88 to a record 3,604. Strong gains are also reported in Frankfurt, Singapore and other exchanges.

Stock markets worldwide are soaring to new highs, a strong indication that investors expect a significant economic rebound to emerge from the current malaise.

But the boom in stock prices, from New York to Frankfurt to Singapore, also reflects a powerful trend likely to outlast shorter-term economic cycles, some experts say: the rapid spread of capitalism around the globe, which has produced an unprecedented fever for private enterprise and share ownership.

On Wednesday, the Dow Jones industrial average topped 3,600 for the first time, jumping 17.88 points to a record 3,604.86 in heavy trading.

The U.S. market has rallied sharply in recent weeks, spurred by a drop in long-term interest rates to levels last seen in the early 1970s. Wednesday, the yield on the 30-year Treasury bond--the benchmark for long-term rates--fell to a historic low of 6.25%, from 6.31% Tuesday.

Wall Street’s rally has caught many vacationing money managers by surprise, necessitating frantic calling from beach houses to trading desks.

“We’re supposed to be having the summer doldrums” in the market, says Robert O’Toole Sr., head of NASDAQ institutional sales for brokerage Lehman Bros. in New York. “But I see nothing but buyers now.”

Yet the action in U.S. stocks, while exciting enough, pales compared to the continuing gains in foreign markets:

* In Hong Kong, the Hang Seng share index has surged 37% this year on the back of China’s capitalist-fueled economic boom. The index jumped 32.18 points to a record 7,560.97 on Wednesday.

* Another China beneficiary, the Singapore market, is up 28% this year as measured by the Straits Times index. It also hit a new high Wednesday, up 23.06 points to 1,951.40. So too did the Kuala Lumpur market in Malaysia.

* In Europe, markets are soaring on expectations that interest rates have begun a decline that will pull the Continent out of its deep recession. London’s FTSE-100 stock index zoomed 48.6 points to a record 3,073.6 on Wednesday, and Frankfurt’s DAX index rose 25.55 points to 1,935.72, the highest since July, 1990.

In all of these markets, analysts say, stocks are in part winning purely by default: Because interest rates now are falling in most major economies worldwide--a result of weak or nonexistent growth--bonds and bank CDs are losing allure. Big and small investors alike are forced into stocks in search of higher returns.

But because the stock market also functions as a predictor of business activity, the global rally suggests that faster economic growth lies ahead, analysts say.

“The market tends to do well before business is good again,” notes Eric Miller, strategist at DLJ Securities in New York.

Belief that the global economy is ready to turn has been fed by recent positive moves in all three major trading blocs:

* In Europe, governments pressed by soaring unemployment have decided to cut interest rates to spur growth, rather than maintain long-cherished stability in their currencies.

* In Asia, China’s embrace of capitalism now is considered irrevocable, while in Japan the new government is expected to encourage a consumption boom.

* In North America, the proposed free-trade agreement moved one step closer to reality last week, stoking expectations for the U.S., Canadian and Mexican economies.

But Steven Nagourney, strategist at Lehman Bros., argues that many investors aren’t buying stocks solely because they expect a global economic recovery. Rather, he says, they are buying because they believe the recovery will be accompanied by low inflation and low interest rates in the years ahead--the ideal environment for stocks, as during the 1950s.

Nagourney views the surplus of labor around the world as a guarantee that businesses’ costs will continue to drop. Citing the entry of China, Eastern Europe and Russia into the capitalist system since 1990, he notes, “You now have a pool of labor that is willing and able to work at less cost.”

That, in turn, requires the work force in the developed world to constantly improve its productivity in order to compete, he says. As painful as that may be for workers (especially those who are laid off), the net effect is to make business more efficient--and to keep inflation, and thus interest rates, under control, Nagourney says.

The drive toward greater efficiency is also reflected in the massive privatization programs that are unfolding around the globe, Nagourney says. Governments from France to Argentina to Singapore are selling state-owned firms--such as utilities and oil companies--to investors, forcing those businesses to stand on their own and compete.

Argentina, for example, in June sold a 44% interest in its state oil company, YPF, to investors. On Wednesday, Singapore said it will sell a 6% to 8% stake in Singapore Telecom to the public in October.

Such share offerings in the developing world ultimately are more fodder for the global bull market, analysts say: While sopping up capital, these privatizations also help create a new generation of investors out of people who formerly might have had no experience with equities.

And despite fears that world stock markets are ahead of themselves, a key difference between the current bull market and the bull market of the ‘80s is that stocks face far less competition from other investments.

“There were a lot of other places to put your money back then,” says Howard Gleicher, money manager at Palley-Needelman Asset Management in Newport Beach. In the ‘80s, real estate boomed, interest rates were far higher, and the West was on a consumption binge.

Today, Gleicher says, “we have all this cash floating around, and nowhere else to put it but stocks.”

Among U.S. market highlights Wednesday:

* Winners topped losers 12 to 8 on the Big Board in heavy trading of 312 million shares.

* Consumer stocks continued to rebound from their recent selloff. Among drug issues, Merck jumped 1 5/8 to 32 1/2, Pfizer gained 2 3/4 to 63 1/4 and Lilly soared 2 1/4 to 47 7/8.

* Food stocks were also broadly higher for a second day. CPC leaped 2 1/8 to 44 1/4, Quaker Oats rose 2 to 69 5/8 and Ralston Purina jumped 3 1/8 to 40.

* Industrial stocks were mixed. Cooper Industries rose 2 to 52 1/2, Monsanto surged 1 1/2 to 63 5/8 and Caterpillar added 7/8 to 81 1/4.

But auto stocks were hit by profit taking: Ford sank 1 1/2 to 50 1/4, GM lost 2 1/8 to 44 3/8 and Chrysler gave up 1 3/4 to 42.

* In the bond market, yields were lower across the board. In commodity markets, gold futures for near-term delivery added $2.70 to $374.30 on New York’s Comex.

Global Bull Market

Stock markets worldwide have been hitting new highs on optimism about lower interest rates and faster economic growth. How key markets have surged this year, in native currencies: Hong Kong: 37% Singapore: 28% Germany: 25% Japan: 23% France: 16% United States: 9% Britain: 8% Mexico: 6%

Gains based on best-known stock indexes in each country.

Source: Reuters