Stocks end worst quarter in four years on positive note

[September 30, 2015] By Jamie McGeever

LONDON (Reuters) - Stocks ended the most bruising quarter in four years on a high note on Wednesday, with a rebound led by the shares most exposed to the global economic slowdown and commodities rout that have rattled investors in recent days.

It was a similar pattern in foreign exchange, where emerging market currencies, having been crushed to historic lows, rose against the dollar.

The specter of deflation in the euro zone reappeared, however. Consumer prices fell across the 19-nation bloc in September, adding pressure on the European Central Bank to inject more policy stimulus sooner rather than later.

Around midday in Europe, the FTSEuroFirst 300 index of leading European shares and Germany's DAX were up 2.5 percent at 1,370 points and 9,678 points, respectively. France's CAC 40 rose 2.7 percent.

Shares in mining and trading firm Glencore, which plummeted on Monday along with commodity prices, jumped 10 percent after it sought to reassure investors over its debt situation. They had risen 17 percent on Tuesday.

Britain's FTSE 100 was up 2.2 percent, and U.S. stock futures pointed to a rise of more than 1 percent at the open on Wall Street.

"The market was squeezed and this is facilitating a rebound ... although it's too early to say if risk appetite has returned," said Ifigest fund manager Roberto Lottici.

Analysts at Daniel Stewart & Co noted that even after the third-quarter weakness, stock valuations still look high, so investors should brace for a difficult fourth quarter, too.

"This reinforces our current view that most equity indices are more likely to fall at least in the short-term rather than bounce back to new record highs," they said in a client note on Wednesday.

The FTSEuroFirst is on track to lose almost 10 percent in the third quarter, the biggest since a 17 percent decline four years ago in the depths of the euro zone crisis.

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.8 percent. It had reached its lowest since June 2012 on Tuesday on fears that China's economic slowdown would curb the country's huge appetite for commodities and resources.

The index was on track for a 17.5 percent loss in the quarter, also its worst performance in four years.

Japan's Nikkei brushed aside an unexpected drop in the country's industrial output to close up 2.7 percent, paring losses for the quarter to 14.1 percent, its deepest since 2010.

2.4 TRILLION EUROS QE?

Annual euro zone inflation in September was -0.1 percent, turning negative for the first time since March and adding pressure on the ECB to extend and expand its quantitative easing program of bond purchases.

This prompted one of the boldest ECB forecasts to date from analysts at Standard & Poor's.

"We believe the ECB will extend its QE program beyond September 2016, most likely until mid-2018, and that it could reach 2.4 trillion euros - more than twice the original 1.1 trillion commitment," they said in a note.

The inflation data helped keep the euro under pressure. It was last down 0.3 percent at $1.1215 , and two-year German bond yields were little changed at -0.245 percent.

Demand for the safe-haven yen eased as stocks steadied. The dollar rose to 120.25 yen, up 0.4 percent on the day and a full yen from the day's low of 119.24.

Yields on U.S. Treasury bonds rose. The 10-year yield was up 4 basis points to 2.09 percent as comparable German yields were little changed.

Emerging market currencies fared better against the dollar. South Africa's rand rose 1 percent, although it was still on track for a quarterly loss of 14 percent, its 14th in succession.

Zambia's kwacha, which had hit a record low on concerns about Glencore and falling copper prices, rebounded around 2 percent.

Benchmark three-month copper on the London Metal Exchange CMCU3 rose 1.7 percent to $5,057 a tonne, compared with a six-year low of $4,855 hit in August.

Prices of other industrial metals, including aluminum and zinc, also halted recent slides.

Crude oil futures were slightly lower, however. U.S. crude fell 0.3 percent to $45.11 a barrel and Brent slipped 0.2 percent to $48.12.

(Additional reporting by Danilo Masoni in London, editing by Larry King)

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