Stocks climb on Europe debt action hopes

[October 06, 2011]  LONDON (AP) -- Hopes that Europe is preparing a big plan to shore up its banks gave stocks around the world another lift Thursday ahead of keenly-awaited policy decisions from the European Central Bank and the Bank of England.

News that the International Monetary Fund is pushing for radical changes in the way the region's debt crisis should be handled and that Germany would be willing to put more money into its banks have helped improve the market tone in the run-up to the decisions. At the start of the week, investor sentiment sank amid signs of further procrastination and confusion among European leaders as they tried to get a handle on the continent's debt crisis.

Both central banks are under pressure to loosen their policies amid mounting signs that the European economy is stalling under the pressure of a debt crisis that has hit consumer sentiment hard at a time governments are cutting down on spending.

The European Central Bank is widely-expected to offer banks more liquidity and some think it may reverse course and cut interest rates, just two months after raising its base rate by a quarter of a percentage point to 1.5 percent.

Meanwhile, the Bank of England is thought to be discussing resuming quantitative easing, a move that essentially creates new money by buying financial assets from institutions.

With the debt crisis in Europe becoming more acute, signs of a reluctance among banks to lend to each other and consumers hesitant to spend, the Bank of England is under pressure to act. That is a sharp turnaround from just a few months ago, when the consensus in the markets was that it should be considering raising interest rates.

"Although only a few are expecting to see any change to headline (interest) rates this month, it's the anticipated announcement of liquidity measures to help recapitalize ailing eurozone banks that is the biggest driver of sentiment this morning," said Yusuf Heusen, sales trader at IG Index.

In Europe, Germany's DAX was up 1.9 percent at 5,576 while the CAC-40 in France rose the same rat to 3,029. The FTSE 100 index of leading British shares was 1.4 percent higher at 5,172.

The euro, meanwhile, was trading flat at $1.3344.

Wall Street was poised to open higher later too -- Dow futures were up 0.7 percent at 10.911 while the broader Standard & Poor's 500 futures rose 0.6 percent to 1,141.

As well as keeping a close watch on developments in Europe, investors in the U.S. will be assessing the next batch of U.S. economic data in the run-up to Friday's monthly government payrolls figures, which often set the market tone for a week or two after their release. A raft of better than expected run of U.S. economic news has helped ease concerns over the world's largest economy.

The rally was evident earlier in Asia, with Japan's Nikkei index closing up 1.7 percent at 8,522.63 and South Korea's Kospi index jumping 2.6 percent to 1,710.32. Hong Kong's Hang Seng index surged 5.7 percent to 17,172.28.

Markets in mainland China were closed for a holiday.

Oil prices tracked equities higher too -- benchmark crude for November delivery was up 82 cents to $80.50 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $4.01 to finish at $79.68 on Wednesday alongside recovering share prices.

[Associated Press; By PAN PYLAS]

Kelvin Chan in Hong Kong contributed to this report.

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