Financial stocks lead recovery

Stocks in Europe and Asia rose for the first time in four days, led by financial shares, on speculation the Federal Reserve will make the deepest interest-rate cut in more than two decades. US index futures advanced.

UBS AG, Europe's biggest bank by assets, rebounded from its steepest retreat since 1998 in Zurich, while Citigroup Inc and JPMorgan Chase & Co gained in Germany. Japan's Aioi Insurance Co rallied the most in three weeks as Deutsche Bank AG recommended the shares. Utilities climbed after their prices relative to earnings reached the cheapest in three years.

The MSCI World Index added 1 percent to 1,392.66 at 11:56 am in London as all 10 industry groups increased. Europe's Dow Jones Stoxx 600 Index climbed from the lowest since 2005, while futures on the Standard & Poor's 500 Index rose 1.3 percent.

"Interest-rate cuts are what are needed and more liquidity is needed," said Lucy MacDonald, who helps oversee $100 billion as chief investment officer of global equities at RCM Ltd. in London. "In the short term it will alleviate the crisis," she said.

The MSCI World has fallen 17 percent from an October record as asset writedowns and credit losses at financial firms worldwide reached $195 billion and the US economy slipped closer to a recession. The gauge of 23 developed markets was valued at 14.2 times earnings on Monday, near the lowest since at least 1995, according to data compiled by Bloomberg.

Traders predict the Fed will lower the overnight lending rate by a full percentage point or more, based on futures prices in Chicago. That would be the biggest reduction since 1984.

The Stoxx 600 added 2.3 percent to 296.88 yesterday, recovering about half of its losses after a 4.6 percent slide on Monday.

The MSCI Asia Pacific Index climbed 0.9 percent, halting a three-day decline.

UBS climbed 10 percent to 27.02 francs. The shares had tumbled 14 percent yesterday. Citigroup, the largest US bank by assets, rose 2.7 percent to $19.13 in Germany. JPMorgan gained 1.7 percent to $41.01.

The Fed took emergency steps over the weekend to stave off a financial panic, lowering its rate on direct loans to banks and becoming lender of last resort for Wall Street's biggest dealers in government bonds.

Aioi surged 10 percent to 561 yen, while Nipponkoa Insurance Co climbed 6.5 percent to 773 yen. The two companies are Japan's fourth- and fifth-largest casualty insurers.

Tatsuo Majima, an analyst at Deutsche Bank, boosted Aioi to "buy" from "hold" and Nipponkoa to "hold" from "sell", saying recent declines in the stocks have made them attractive.

Agencies

(China Daily 03/19/2008 page16)