BLBG: Stocks Rise; MSCI World Has Longest Streak of Gains Since 2006
Stocks climbed, sending the MSCI World Index to the longest stretch of gains since 2006, as the Federal Reserve said it will buy $300 billion of government bonds to combat the first global recession since World War II.
The MSCI World advanced for an eighth day, led by banks and raw-material producers, the past year’s worst performers. Standard & Poor’s 500 Index futures rose even as some investors questioned whether the Fed’s efforts will end the economic contraction. The dollar fell below $1.36 against the euro for the first time since January, while European government bonds soared. U.S. Treasury notes fluctuated after surging the most in more than four decades yesterday. Copper, oil, wheat and soybeans rallied.
“We’re unsure if this is a sucker’s rally,” said Staffan Sevon, chief investment officer at Nordea Asset Management in Helsinki, which has $231 billion. “The Fed is doing the right thing. Even though it is probable this will end well and we won’t be living in the forest eating berries, there will be enough nasty surprises to scare the market.”
The MSCI World added 2.8 percent at 1:27 p.m. in London as UBS AG led a rally in banks, Xstrata Plc advanced with metals, and Hermes International SCA and Prudential Plc climbed on earnings that beat analysts’ estimates.
The gauge of 23 developed countries has surged 17 percent since March 9 as Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. said they made money during the first two months of 2009 and the Fed signaled its determination to avoid a repeat of the Great Depression.
Futures on the S&P 500 added 1.1 percent after earlier falling 1 percent. General Electric Co. climbed after saying its finance unit will be profitable this year.
Yesterday’s rally cut the S&P 500’s 2009 drop to 12 percent from as much as 25 percent on March 9. The Fed will use newly created money to fund the purchases, increasing the supply of funds in the market and helping to drive down rates.
$1.2 Trillion
Governments from the U.S. to Japan and China have stepped up efforts to ease the worst financial crisis since the Great Depression as banks, brokerages and insurers racked up more than $1.2 trillion in credit-related losses and writedowns.
The Fed’s move “is very much one of the key foundations for eventual recovery,” Jeremy Batstone-Carr, an equities analyst at Charles Stanley & Co. in London, said in a Bloomberg Television interview. “This is an important step. We need to see further action taken in Europe. This is another piece in the jigsaw.”
Europe’s Dow Jones Stoxx 600 Index gained for the first time in three days, adding 2.2 percent. The MSCI Asia Pacific Index rose for a fifth day, climbing 2.8 percent. Mitsubishi UFJ Financial Group Ltd., Japan’s biggest publicly traded lender, increased in Tokyo, where the central bank said it will buy more bonds from banks.
UBS, European Banks
UBS, the European bank hardest hit by the credit crisis, added 9.8 percent to 12.97 Swiss francs, extending its eight-day gain to 51 percent. Switzerland’s biggest bank offered to buy back 1 billion euros ($1.34 billion) in debt to boost capital adequacy and said it will seek authority from shareholders to raise capital in the future if needed.
Lloyds Banking Group Plc, the U.K.’s biggest mortgage lender, surged 26 percent to 60.1 pence. Barclays Plc, the third-largest British bank, rose 17 percent to 112 pence.
Bank of Ireland Plc jumped 17 percent to 41 euro cents. Allied Irish Banks Plc advanced 11 percent to 58 cents. Ireland has been advised to set up a “toxic debt” company to take over souring property loans from the country’s banks, the Irish Independent said, without saying where it got the information.
Xstrata, which produces copper and is the world’s biggest exporter of power station coal, gained 13 percent to 430 pence. StatoilHydro ASA, the largest offshore oil and natural-gas operator, added 3.9 percent to 118.7 kroner.
Copper, Gold
Copper for three-month delivery advanced 4.4 percent to $3,930 a metric ton in London. Gold jumped the most since November and oil exceeded $50 a barrel for the first time in two months on speculation the Fed’s steps to spur growth will revive demand for commodities as a hedge against inflation.
Corn, soybeans and wheat gained on an outlook for increased demand for U.S. crops. May-delivery wheat advanced as much as 2.6 percent to $5.4375 a bushel. Soybeans for May delivery rose as much as 3 percent to $9.425 a bushel.
Hermes rose 3.7 percent to 74.55 euros. The company raised its dividend and vowed to keep opening stores as demand for the luxury label’s Birkin and Kelly handbags resists the recession.
Prudential advanced 26 percent to 318.25 pence. The U.K.’s second-largest insurer said Chief Executive Officer Mark Tucker will step down as the company posted operating profit that beat analysts’ forecasts.
Buying Government Debt
Mitsubishi UFJ rose 2.3 percent to 489 yen. Mizuho Financial Group Ltd., Japan’s second-biggest lender, gained 1.5 percent to 209 yen.
The Bank of Japan said yesterday it will buy 1.8 trillion yen ($18.3 billion) of government debt from banks each month, up from 1.4 trillion. The central bank said on March 17 that it may provide as much as 1 trillion yen in subordinated loans to banks.
The yield on the 10-year Treasury note fell two basis points to 2.52 percent after sliding 47 basis points yesterday on the Fed’s announcement. The yield on the 10-year German bund, Europe’s benchmark government security, slid as much as 22 basis points, the most in at least a decade, according to data compiled by Bloomberg.
The dollar declined to a two-month low against the euro on speculation the Fed’s plan to buy Treasuries will push down yields on U.S. assets and prompt investors to seek higher returns elsewhere.
Japanese Exporters
The dollar’s drop, which reduces the profitability of revenue generated abroad for Japan’s exporters, help push Japan’s Nikkei 225 Stock Average down 0.3 percent.
Toyota Motor Corp., which gets 37 percent of sales from North America, lost 2.2 percent to 2,965 yen. Honda Motor Corp. slumped 3 percent to 2,230 yen.
GE added 7 percent to $11.04. The company reaffirmed that its GE Capital finance unit will be profitable this quarter and earn about $5 billion for the full year, even as a global recession and credit crunch hurt demand.
The U.S. stock market failed to sustain a previous rebound that was also spurred by government efforts to revive the economy and halt the financial crisis. The S&P 500 rallied 24 percent between a 12-year closing low of 752.44 on Nov. 20 and its high for 2009 on Jan. 6, only to erase those gains and slump to a fresh low last week.
The speed of the current recovery is a signal to some investors the advance may fade as the longest U.S. earnings slump shows no sign of ending. Investors betting U.S. President Barack Obama will halt the recession snapped up stocks at the fastest rate since the start of the subprime mortgage collapse in August 2007, pushing the ratio of rising to falling shares to an 18-month high and the Dow above its 30-day average for the first time since Jan. 8.
