World stocks rise ahead of US stress tests results

[May 07, 2009]  LONDON (AP) -- European markets extended their rally Thursday ahead of the announcement of the results of the U.S. government's stress tests on the country's biggest banks and in anticipation of key interest rate decisions in Europe.

In late morning trading in Europe, Britain's FTSE 100 was up 2.1 percent to 4,487.95, Germany's DAX rose 1.6 percent to 4,958.48, and France's CAC 40 added 1.5 percent to 3,331.30.

U.S. markets were also expected to open higher. Dow Jones futures climbed 0.5 percent to 8,513.00 and Standard & Poor's 500 futures rose 0.5 percent to 921.50.

Asian stocks likewise pressed higher as early reports about the U.S. banks' stress tests helped reassure many investors that a global economic recovery is on the horizon.

Findings of the government's long-awaited stress tests of 19 banks leaked out Wednesday, a day ahead of the official announcement. Investors seemed relieved by media reports indicating the balance sheets of top U.S. banks weren't as bad as feared, though Bank of America and others were still facing huge capital shortfalls should the economy worsen. Some already had enough funds to weather the downturn.

"One can view the stress tests as a success because they apparently increased confidence in the financial sector," said Adrian Mowat, chief Asian equities strategist at JP Morgan in Hong Kong.

Asian banks soared in line with huge overnight gains by their American peers, and European financial stocks led the gains Thursday. A notable exception was Societe Generale, which fell 5.4 percent after it said it returned to a loss in the first quarter -- when a further devaluation of its U.S. real estate-linked assets caused it to take nearly euro2 billion ($2.7 billion) in new writedowns and provisions.

Better news came from Barclays PLC, which reported first-quarter net profit rose 12 percent as investment banking profits surged from the acquisition of U.S. assets of bankrupt Lehman Brothers. The bank however posted a steep 79 percent increase in writeoffs on bad investments.

Investors were also awaiting key interest rate decisions from the European Central Bank and Bank of England.

The ECB is expected to cut its main interest rate by a quarter point to 1 percent and has said it will unveil additional measures to help boost the 16-nation euro zone economy. The Bank of England, meanwhile, is widely expected to leave its rates at a record low of 0.5 percent but could provide a progress update on its plan to purchase assets from banks.

But it was the U.S. government's stress tests that concerned investors most, as a mood of optimism continued to pervade the markets.

"All eyes are still going to be on the stress tests later today, even though we have had a lot of information already leaked," said James Hughes, market analyst at CMC Markets in London.

"It seems that the rally is pretty much relentless at the moment," he added. "If you look at the fundamentals at the moment, why is this market up, it really shouldn't be at the moment because of so much poor information. There's optimism with banks which is helping things at the moment, that the stress tests aren't going to be as bad as first thought and things may be starting to turn the corner.

"But it may all be short-lived because U.S. markets are set to post some poor numbers over the next few days," Hughes added, referring to new jobless claims later Thursday and non-farm payroll data Friday.

Japanese shares led the Asian rally, with the Nikkei 225 index surging 408.33 points, or 4.6 percent, to 9,385.70 -- a six-month high -- as investors returning from a three-day holiday played catch up with gains on other regional markets.

Hong Kong's Hang Seng was up 383.32, or 2.3 percent, to 17,217.89 and South Korea's Kospi inched 0.6 percent higher at 1,401.08.

Elsewhere, Australia's benchmark rose about 1.5 percent. Chinese and Taiwanese markets, both higher in recent days amid news of greater economic cooperation between the two rivals, recovered from early losses to add to their gains.

Banks posted some of the day's biggest gains. Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, shot up nearly 16 percent, despite warning last week it would post a $2.6 billion group net loss for last fiscal year.

Surging U.S. bank shares lifted Wall Street overnight, as did a private-sector report on jobs showing employers slashed far fewer positions in April than in March. For many investors, that boded well for a key April jobs report due out Friday from the government.

The Dow was up 1.2 percent to 8,512.28, the highest close since Jan. 9. The S&P 500 rose 1.7 percent to 919.53.

Oil prices extended their gains to near six-month highs on expectations that economic growth may begin to rebound by the end of the year. Benchmark crude for June delivery was up $1.43 to $57.77 a barrel in European trading. The contract Wednesday rose 4.6 percent, or $2.50, to settle at $56.34, the highest level since mid-November.

[Associated Press; By LOUISE WATT]

AP business writer Jeremiah Marquez in Hong Kong contributed to this report.

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