MARKETS RALLY ON OSAMA BIN LADEN'S DEATH

Sydney, May 2- Financial markets quickly bet that the death of the al-Qa'ida leader could ease geopolitical risks in the Middle East, with markets rallying to mark the end of a 10-year manhunt for the terrorist network's boss.

The announcement by US President Barack Obama that bin Laden had been killed in a firefight with US forces in a Pakistan compound prompted the US dollar to rebound strongly against most major world currencies.

Wall Street was expected to surge at the opening last night, as investors backed the theory that bin Laden's death could reduce some geopolitical risks.

Just how long the europhia would last was unclear, as ongoing risks to the world economy persist, but traders were not standing in the way of the celebrations.

"The death of bin Laden eases some concern, but it's hard to imagine it will lead to a reduction of risk in the Middle East, and so the market's reaction may be transitory," said Koichiro Nishio, a market analyst at SMBC Nikko Securities in Tokyo. "The recovery of demand in the US and other developed countries means a better environment for earnings”.

IG Markets strategist Ben Potter said the improved sentiment towards US equities resulting from the bin Laden news could prove temporary as investors prepared for the corporate confession season.

"Like many euphoric bounces, they are often short-lived, especially given the possibility for reprisal attacks from extremists," Mr Potter said.

In the Asia-Pacific region, bin Laden's demise prompted a sharp turnaround in Australian stocks, which had been trading at a five-week low.

The S&P/ASX 200 had been trading down 58 points, but instantly gained ground and closed the session up 2.1 points at 4825.3.

The broader All Ordinaries was down 2.8 points to 4896.2.

In Japan, the Nikkei index rallied by 1.5 per cent, while the remaining major markets in Hong Kong, Singapore and Shanghai were closed because of a public holiday.

The likelihood of reduced conflict between the US and the Middle East caused the oil price to fall from a 31-month high as traders speculated that supply disruptions were likely to be reduced.

On the New York Mercantile Exchange yesterday, light sweet crude futures for June delivery were at $US112.33 a barrel, down at least $US1.60. Gold fell as investors switched from the precious metal to the US greenback.

The spot gold price fell to $US1545 an ounce after the bin Laden announcement, but closed off its lows at $US1553.

Before the news, silver suffered one of its worst recent one-day falls, as the spot price was sliced from $US48.15 an ounce to as low as $US42.21.

On the currency markets, the greenback was experiencing a rare note of positive sentiment, as it gained against most of its rivals.

The Australian dollar had earlier in the day hit a new record of $US1.10, after Moody's confirmed Australia's AAA-credit rating.

However, it softened after the bid Laden news and last night was trading at $US1.0938. The dollar could receive a boost if the Reserve Bank delivers a hawkish statement after it meets today to set interest rates for May.

A majority of economists and market observers expect the official cash rate to be kept steady at 4.75 per cent.

Rochford Capital director Thomas Averill said the US dollar was beginning to improve before markets knew of bin Laden's death.

"There was some US dollar strength on some liquidation that there has been in commodity markets," Mr Averill said. "That happened before bin Laden news.

"There is some thought in the market that there could be reprisal attacks, so there could be some risk-aversion coming up”.

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