Global Stocks Rise as Germany, France Agree on Bank Plan
World stocks and the euro rose on Monday while top-rated government bonds and the dollar fell after German and French leaders promised to announce fresh steps to tackle the euro zone debt crisis by the end of the month.
German Chancellor Angela Merkel and French President Nicolas Sarkozy said after talks in Berlin on Sunday that their goal was to come up with a sustainable answer for Greece's debt problems and agree how to recapitalise European banks.
But they declined to give any details of their plan, which left investors wary of buying risky assets aggressively.
Investors are also cautious ahead of a key vote by the Slovakian parliament on Tuesday to ratify changes to the rescue fund to increase its lending capacity. One dissenting voice among the 17 countries that use the euro could wreck that plan.
"The market is looking for a road map for a solution to the euro zone crisis. Merkel and Sarkozy details are scratchy and investors will need to see the detail by the end of the month," said Richard Batty, strategist at Standard Life Investments, which has $245 billion of assets under management.
"Although it is positive, the issue is how much extra capital do the banks need. Any bailouts may mean a further hit to equity holders. We still need to see the extent of potential losses."MSCI world equity index rose 0.5 percent, having posted a second consecutive weekly gain last week. The benchmark index is more than 7 percent above its 15-month low set last week.U.S. stock futures gained 1.3 percent, pointing to a firmer open on Wall Street later.
European stocks and emerging stocks both gained 0.5 percent.China shares closed at their lowest since March 2009, dragged down by property issues after local media reported a drop in property sales volumes during the Golden Week holiday last week. Volume in Shanghai slumped to a 33-month low.
U.S. crude oil rose 1.9 percent to $84.52 a barrel.
Bund futures fell 49 ticks, erasing earlier gains. Bonds earlier found support from safe-haven flows also underpinned by downgrades of Italy and Spain's credit ratings on Friday. Moody's warned it could cut Belgium's rating. Two-year German bond yields were up 3.1 bps at 0.639 percent, with 10-year yields up 3.5 bps at 2.038 percent.
"Yields can't fall much further while there's hopes they will pull a rabbit out of the hat, so unless we see news to the contrary, risk markets should be fairly stable and flight-to-quality flows into Bunds will be limited, keeping a floor under yields," RIA Capital Markets rate strategist Nick Stamenkovic said.
The dollar lost 1.2 percent against a basket of major currencies.
The euro rose 1.5 percent to $1.3592, pulling further away from last week's nine-month low around $1.3145.
Concrete steps to recapitalise euro zone banks could offer some relief to the euro, which has been dogged by mounting worries about the impact of the bloc's debt crisis on the European banking sector.
France, Belgium and Luxembourg agreed a rescue plan early on Monday for Dexia bank, while other French banks have come under intense pressure because of their exposure to Greece and other weak European countries.BNP Paribas and Societe Generale denied they would seek to raise a combined 11 billion euros as part of a broader European recapitalisation plan.
French Finance Minister Francois Baroin said he did not think any more banks would need to be rescued after Dexia.