World stocks await key US stress test results

[May 05, 2009]  LONDON (AP) -- World stock markets rose modestly Tuesday as investors awaited details of which U.S. banks will need more capital, while Britain's FTSE 100 index surged as it played catch-up after being closed the day before when investors reaped big gains.

In Europe, the FTSE was up 114.94 points, or 2.7 percent, at 4,358.16, while Germany's DAX rose 17.12 points, or 0.4 percent, to 4,919.57. France's CAC-40 was up 6.86 points, or 0.2 percent, at 3,244.83.

While London was closed Monday for a public holiday, markets around the world posted heavy gains, most notably in Asia where some actually jumped over 5 percent and the U.S., where the Standard & Poor's 500 spiked 3.4 percent and moving the index into positive territory for 2009.

Mounting hopes that the global economy may start to recover later this year have been the main catalyst behind the strong stock market gains, particularly in the U.S. where a run of data have indicated that worst of the recession in the world's largest economy may have run its course.

Stock markets usually rally around six to nine months before real evidence of an economic recovery.

"Although optimism must surely be tempered by the simple observation that Japan registered two years of growth following the collapse of its asset price bubble in 1990, it has become quite clear that the recent improvement in a broad swathe of data globally have underpinned a growing confidence among investors that the worst of the crisis is behind us," said Simon Derrick, an analyst at Bank of New York Melon.

Nevertheless, investors remained wary of calling the start to a bull market, especially as the U.S. government's stress tests into 19 leading banks -- results of which could come later Tuesday -- are expected to show that several banks need more capital. Investors are particularly concerned about Citigroup Inc. and Bank of America Corp.

A report in the Wall Street Journal Tuesday said about 10 of the 19 banks undergoing the tests will be instructed to boost their capital base one way or another.

Even though the recovery in the U.S. should be on a firmer footing if the banks get their balance sheets in shape, many analysts think the markets are overestimating the speed and scale of the economic rebound.

"The bottom line is that markets believe that recovery from recession will follow the usual pattern, but the reality is that the financial crisis, and depth and length of the global recession are unlike anything seen previously," said Mitul Kotecha, an analyst at Calyon Credit Agricole.

"Euphoria may have got the better of common sense but there is no sign yet of markets coming back to reality," he added.

Wall Street was poised to open steady. Dow futures were unchanged at 8,359 while the S&P 500 futures fell 1.1 point, or 0.1 percent, to 901.70.

Earlier in Asia, Hong Kong's benchmark Hang Seng index flitted in and out of positive territory to end the day up 49.03 points, or 0.3 percent, at 16,430.08. Mainland China's benchmark Shanghai Composite Index also edged up 0.3 percent to a nine-month high close of 2,567.34, as property shares fed expectations that the economy may be poised for recovery.

Australia's main index climbed 0.2 percent to 3,890.40, while Singapore's Straits Times index rose 2.3 percent.

Financial markets in Japan, South Korea and Thailand were closed for national holidays.

Oil prices declined modestly, but lingered above $54 a barrel on general optimism about the global economy. Benchmark crude for June delivery was down 46 cents to $54.01 in electronic trading on the New York Mercantile Exchange.

In currencies, the dollar dipped to 98.68 yen from 98.85 late Monday in New York, while the euro fell to $1.3384 from $1.3419.

[Associated Press; By PAN PYLAS]

AP Business Writer Elaine Kurtenbach in Shanghai contributed to this report.

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