Global Stocks Climb on Europe Bank Support Speculation

Markets Reuters

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.

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European Commission President Jose Manuel Barroso proposed a coordinated recapitalisation of banks to restore confidence, while the European Banking Authority said it was examining the resilience of lenders' capital positions.

That all followed German Chancellor Angela Merkel's declaration on Wednesday that Berlin was ready to recapitalise its banks if needed , which calmed nerves and helped drive stock markets worldwide higher.

Most analysts expect euro zone and UK central bank policy meetings on Thursday to hold fire on moves to stimulate growth, with the European Central Bank likely to limit itself to more steps to help banks.

But there are doubts to that view; markets see a slight chance of a cut -- although pricing showing around 15 of a standard 25 basis point move in the ECB's main rate also reflects the huge excess of cash that has been pumped into money markets.

At any rate, 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.

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"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 rose 1.3 percent, having hit a 15-month low earlier this week. The index is around 6 percent above this low.

 

WALL STREET UP

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

U.S. stock futures rose half a percent , pointing to a higher open on Wall Street.

"Apparently the market has made up its mind, speculating on a big comprehensive solution from the global policymaker camp," said WestLB rate strategist Michael Leister. "The worry is there is decent room for disappointment."

European stocks rose 1.5 percent and emerging stocks added 2.8 percent.

U.S. crude oil gained 1 percent to $80.48 a barrel.

Bund futures fell 47 ticks on the day.

The cost of insuring peripheral euro zone debt against default fell. Five-year credit default swaps on Italian government debt fell 18 basis points to 450 bps, according to data monitor Markit.

Equivalent CDS prices fell for Spain, Portugal and Belgium.

The dollar fell 0.1 percent against a basket of major currencies. The euro rose 0.1 percent to $1.3363.

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