Stocks rally globally on Fed's rate reduction

European stocks climbed the most in a month, following gains in Asian and US markets, after the Federal Reserve lowered its benchmark lending rate by half a percentage point to keep the world's largest economy growing.

UBS AG, Deutsche Bank AG and Lloyds TSB Plc led an advance by financial shares in Europe. Total SA, the region's largest refiner, and mining company BHP Billiton Ltd rose after crude oil traded above $82 a barrel and copper increased in London. Toyota Motor Corp and National Australia Bank Ltd paced advances in Asia, while US bank shares including Morgan Stanley and Goldman Sachs Group Inc rose in European trading.

"It's a bit like the cavalry arriving, this time in helicopter gunships," said Daniel Broby, chief investment officer at Renaissance Investment Management in London, where he helps manage $4 billion. "We had our strategy meeting yesterday and we were certainly saying that if rates were cut by this magnitude we would be playing the rally."

Europe's Dow Jones Stoxx 600 Index added 1.9 percent to 374.5 as of 10:20 am in London, the biggest rally since August 17. The Morgan Stanley Capital International World Index, a global benchmark, advanced 1.5 percent to 1,602.51, while Standard & Poor's 500 Index futures rose 0.3 percent to 1,536.9.

Grupo Ferrovial SA and Hochtief AG led construction stocks to their steepest gain in more than a year after Citigroup Inc said the industry offers "substantial opportunities".

The risk of owning European corporate bonds fell to the lowest in two months yesterday, according to traders of credit-default swaps. The yen rebounded versus the dollar on speculation Japanese exporters bought the currency after the Fed rate cut. US 10-year Treasury notes fell for a third day.

Avoiding recession

The half-point reduction in the federal funds rate to 4.75 percent was larger than most economists surveyed by Bloomberg predicted.

Policy makers said they based their decision on the "potential" for the sell-off in credit markets to hobble economic growth.

"You ask yourself if the Fed is seeing really big trouble for the US economy," said Madeleine Hofmann, an analyst at Julius Baer Holding AG in Zurich.

"I tend to be in the camp that feels reassured that the Fed thinks to do everything to avoid a US recession."

National benchmarks gained in all 17 western European markets that were open. The United Kingdom's FTSE 100 increased 2 percent. France's CAC 40 added 2.1 percent. Germany's DAX rose 1.7 percent.

Japan's Nikkei 225 Stock Average surged the most since March 2002, climbing 3.7 percent to 16,381.54. All Asian markets increased except China.

UBS, Switzerland's largest bank, rose 3.9 percent to 64.6 francs. Deutsche Bank, Germany's largest lender, added 3.3 percent to 93.31 euros, and Lloyds TSB, the UK's No. 1 provider of personal loans, advanced 3 percent to 535 pence.

Total increased 1.6 percent to 57.6 euros. BP Plc, Europe's second-largest oil company, rose 1.1 percent to 578 pence.

BHP Billiton, the world's biggest mining company, gained 4.8 percent to 1,604 pence. Rio Tinto Group, the third-largest, advanced 4.8 percent to 3,909 pence.

Copper for delivery in three months rose 2.8 percent to $7,795 a metric ton in London. Nickel, lead, zinc and aluminum prices also climbed.

Toyota, Japan's largest automaker, led exporters higher in Japan, jumping 4.5 percent to 6,700 yen. The company made 35 percent of its sales last year in North America.

Mitsubishi UFJ, Japan's biggest lender by assets, surged 6.1 percent to 1.06 million yen, its biggest gain in almost two years. National Australia Bank, the country's largest lender, gained 2.6 percent to A$38.20.

Bloomberg News

(China Daily 09/20/2007 page16)