Global stocks rise on hopes for bank support

Reuters, Thursday 6 Oct 2011

Growing expectations that policy makers will intervene to recapitalise banks is fuelling growth in global stocks for the second day in a row

World stocks rose for a second day on Thursday while government bonds fell as expectations grew policymakers would take steps to support European banks, under threat from the impact of a possible Greek default.

German Chancellor Angela Merkel said on Wednesday Berlin was ready to recapitalise its banks if needed, adding to pledges by European finance ministers to safeguard banks in the face of mounting concerns about a Greek default

The Financial Times reported on Thursday that the European Banking Authority, mid-way through a two-day crisis meeting to assess the potential hit of mass sovereign restructurings, is re-examining the strength of the region's banks.

Investors are focusing on euro zone and UK central bank policy meetings for hints on future monetary easing.

A majority of analysts predict the European Central Bank will refrain at least until next month from cutting interest rates and the Bank of England from pumping more money into the economy. But there are those in both markets who see a risk of such moves already on Thursday and the ECB is expected to take further steps to help banks.

Hopes for near-term policy measures -- both from politicians and central banks -- are helping investors to take a break from a sell-off triggered by growing concerns about the damage to the banks from any Greek sovereign default.

"Significant talk of bank recapitalisation is certainly the driving factor behind positive sentiment," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"But there is still a lot of uncertainty. Speed is of the essence and that would make a difference. If we see another week or so go by without some significant step forward, that is likely to inject nerves back into the markets."

The MSCI world equity index was up 0.9 per cent, having hit a 15-month low earlier this week. The index is around 5.6 per cent above this low.

U.S. stock markets also finished higher on Wednesday. VIX index , Wall Street's fear gauge, fell 7 per cent to 37.81 on Wednesday, down sharply from this week's peak of 46.88, lending support to investors cautiously putting some risk back on in the near-term.

European stocks rose 0.4 per cent and emerging stocks added 2.2 per cent.

U.S. crude oil CLc1 gained a quarter per cent to $79.91 a barrel.

Bund futures FGBLc1 fell slightly on the day.

Spain will sell up to 4.5 billion euros of bonds, with comments from the IMF that it may buy peripheral bonds seen helping, although the fund later stepped back from a firm pledge to do this.

The euro fell 0.2 per cent to $1.3324.

"Inflation fears may not allow the ECB to cut rates, but we're bound to see some form of support for Europe's banking system -- and that should help the euro rise," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust and Banking in Tokyo.  


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