Asian markets jumped to eight-month highs Monday on expectations of a global economic recovery even as General Motors prepared to file for a historic bankruptcy protection.  A third successive rise in Chinese manufacturing also raised hopes that the worst of the economic crisis is over.  The Shanghai Composite Index in Mainland China jumped 3.4% as the country’s official purchasing managers’ index for May fell to 53.1 from 53.5 in April.  Hong Kong’s Hang Seng surged 4% and the Nikkei added 1.6%.

Following the overseas gains, US stock futures suggest Wall Street is headed for a higher open.  Dow Jones industrial average futures rose 1.2% to 8,586. Standard & Poor’s 500 index futures jumped 1.4% to 930.50, while Nasdaq 100 index futures gained 1.1% to 1,451.50.       

On Friday, a late-session rally pushed U.S. stocks to their biggest three-month run since 2007, as commodities recorded their highest monthly advance since 2007 and energy stocks rose, helped by a spike in oil prices.  The S&P 500 index, which recorded its steepest weekly loss since March during the prior week, rose 3.6% during the holiday-shortened week.  Sustained expectations that the economy is turning a corner have pushed global benchmarks higher and resulted in increased buying activity.  The Dow Jones Industrial Average jumped 223.01 points, 2.7% to 8500.33, capping an upbeat week for Wall Street.  Since hitting their 12-year lows in early March the indices have jumped nearly 30% on the DJIA, 36% on the S&P, and almost 40% on the NASDAQ.

All ten S&P industry groups recorded gains on Friday.  Since the beginning of the year, basic material shares have recorded the sharpest gains, up 23.8%, followed by a 20.5% jump in technology stocks. The Reuters/Jefferies CRB Index of 19 raw materials increased over 14% in May for its biggest monthly rise in 35 years.  U.S. Steel Corp. (NYSE:X) jumped 16% to $34.08 and Freeport-McMoRan Copper & Gold Inc., (NYSE:FCX) surged 13% to $54.43., leading gains among raw- materials companies.  Oil prices climbed above $66 to a six-month high.  Year-to-date, five sectors remain in negative territory, including: utilities, off 8.4%, telecom, down 6.7%, financials, off 4.1%, and industrials and health care, down 2.1%.

Shares of General Motors (NYSE:GM) plunged 48% to $0.75, the lowest since great depression, as the automaker appeared set to file for Chapter 11 bankruptcy protection. Some media reports suggested the company will sell most of its assets to a new entity. Late Sunday, a federal bankruptcy court cleared Chrysler to come out of bankruptcy and sell most of its assets to Italian car maker Fiat. 

Treasury Secretary Geithner travels to China for two-day talks with Chinese leaders, even as the weakness in US dollar keeps the focus on US economic health relative to its global partners. Traders, nevertheless, are expected to remain glued to developments on that front. Geithner, on his part, has tried to remain optimistic, noting, “The global recession seems to be losing some force; and “The financial system is starting to heal.” Last week’s OPEC meeting also revealed its members optimistic on the outlook for the economy and crude prices with Saudi oil minister Naimi asserted the world economy can withstand $75-$80 per barrel oil.

However, an increased appetite for risk has sent commodity prices higher, heightening fears of inflation. According to Barclay Capital’s (NYSE:BCS) quarterly FX investor sentiment survey only 17.5% of the 605 central bankers, asset managers, hedge funds and international corporate clients interviewed expect the rally to continue, with six out of ten believing the rally is a bear market trap, and 69% describing a recovery as most likely to prove either u-shaped or w-shaped.

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