Global stocks fly, bonds sink as crisis eases

News: Page (1) of 1 - 10/13/08

Global stocks fly, bonds sink as crisis eases

By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks surged for a second day on Tuesday, with Japan's Nikkei up a record 14 percent, as investors hoped plans from governments around the world to take stakes in banks will stabilize the global financial system and mark an end to the worst of the crisis.

Major European stock markets were expected to open as much as 6.6 percent higher, according to financial bookmakers, and U.S. stock futures were up 2 percent following news that the U.S. government intends to inject up to $250 billion into banks.

The yen fell broadly and the yield on the 10-year U.S. Treasury note hit a two-month high as investors ditched low-risk investments to scoop up heavily oversold shares. Policymakers staged their biggest and most coordinated effort yet to kickstart lending markets and ease credit strains.

Fears of a looming global recession were not dead, but for now the sweeping emergency steps being enacted by governments reduced the risk of financial system failure.

"It seems the tide has turned and a complete meltdown of markets and a depression have been avoided. Investors can now re-focus on fundamentals rather than the degree of panic in the market," Dariusz Kowalczyk, chief investment strategist with CFC Seymour in Hong Kong, wrote in a client note.

After plunging 24 percent last week, the Nikkei share average soared 14.2 percent -- the biggest daily gain ever -- following a holiday on Monday.

The MSCI index of other Asia-Pacific stocks climbed 7.3 percent after hitting its lowest since December 2004 on Friday. In two days, the index has retraced more than half its losses last week.

Hong Kong's Hang Seng index rose 4.4 percent, a day after rising 10.2 percent -- its biggest single-day rise in 9 months.

The Dow Jones industrial average and the S&P 500 index of U.S. stocks posted record gains overnight, jumping more than 11 percent. Global stocks added $1.7 trillion in market value, the biggest single-day increase since the financial crisis began 14 months ago, according to MSCI.

The U.S. government agreed on Monday to spend $250 billion taking stakes in several big banks to shore up the banking system and arrest the financial crisis, sources familiar with the situation said. The move follows pledges by the governments of Britain, Germany, France and other European countries of more than 1 trillion euros ($1.36 trillion) to bolster their banks.

SIGNS OF LIFE

Money markets showed initial signs of life.

London interbank offered rates (Libor), the benchmark for corporate, financial and household borrowing, eased in sterling, euros and U.S. dollars at the daily fixing on Monday.

The spread of 3-month Libor over the 3-month U.S. Treasury yield narrowed to 451 basis points from 459 bps. Three-month futures of eurodollars, U.S. dollar-denominated deposits held abroad, rose as dealers anticipated a further dip in Libor.

The rally in global equities has been powerful, but prospects for the rest of the quarter were unclear. Asian investors have become much more risk averse, especially when it comes to commodities, according to a quarterly ING Investor Dashboard survey.

Twenty-eight percent of affluent investors in Asia ex-Japan said they would invest in global resources in the fourth quarter, down from 40 percent in the prior quarter. Thirty-five percent said they would hold on to cash.

Government bonds were hard hit as equity markets rallied.

The benchmark 10-year U.S. Treasury note fell more than a full point in price, pushing up the yield to a 2-month high of 4.09 percent from 3.88 percent late on Friday in New York. U.S. bond markets were closed on Monday for a holiday but stock markets traded.

The difference between the 10-year yield and the 2-year yield, referred to as their yield curve, narrowed by 17 bps, as investors essentially reduced bets on an aggressive interest rate cut by the Federal Reserve this month.

However, Mike Turner, head of global strategy and asset allocation with Aberdeen Asset Management in London, said in a note that central banks in Britain, the euro zone and U.S. should actually cut interest rates more to keep the crisis from further damaging the global economy.

"We expect central banks to ease policy still further following their coordinated 50 bp cut last week," he said.

"At the very least easing can generate some confidence in capital markets whilst catering ultimately for the threat of deflation should the financial crisis perpetuate the contraction."

The benchmark 10-year Japanese government bond yield hit a three-month high of 1.630 percent.

The euro rallied 1.3 percent from late U.S. trading on Monday to 140.34 yen, having rebounded off a three-year low of 132.15 yen hit on trading platform EBS on Friday.

The U.S. dollar climbed 0.8 percent from late New York to 102.80 yen, having come off a six-month low of 97.91 yen hit on Friday.

U.S. crude oil futures rose more than 4 percent overnight and another 1.75 percent in early trade on Tuesday on hopes the financial crisis may ease. Light sweet crude futures were trading around $82.59 a barrel.

And gold gained more than 2 percent, helped by firmer oil prices and a stronger euro, recovering from its biggest 2-day drop in more than a quarter of a century.

(Editing by Ian Geoghegan)

?? 2008 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies. For additional information on other Reuters media services please visit http://about.reuters.com/media/.

Page: 1


	Saturday, May 25, 2013