Zurich: Stocks climbed, sending the MSCI World Index to the longest stretch of gains since 2006, as the US Federal Reserve said it will buy $300 billion, or Rs15.24 trillion, of government bonds to combat the first global recession since World War II.
The MSCI World index advanced for an eighth day, led by banks and raw material producers, the past year’s worst performers. Gains in Standard and Poor’s 500 Index futures were limited after US stocks closed at a one-month high on Wednesday as some investors questioned whether the Fed’s efforts will end the economic contraction.
European government bonds soared, while US treasury notes fluctuated after surging the most in more than four decades on Wednesday. Copper, oil, wheat and soya beans 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.”
Government aid: A stock board in Tokyo, Japan. The Bank of Japan has said it will buy 1.8 trillion yen of govt debt from banks each month. Tomohiro Ohsumi / Bloomberg
The MSCI World added 2.4% at 12.39pm 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% since 9 March as Citigroup Inc., Bank of America Corp. and JPMorgan Chase and Co. said they made money during the first two months of 2009 and the Fed signalled its determination to avoid a repeat of the Great Depression.
Futures on the S&P 500 added 0.5% after earlier falling 1%. Wednesday’s rally cut its 2009 drop to 12% from as much as 25% on 9 March.
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.
Governments from the US 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 and Co. Ltd in London, said. “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%. The MSCI Asia Pacific Index rose for a fifth day, climbing 2.8%. Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded lender, increased in Tokyo, where the central bank said it will buy more bonds from banks.
UBS, the European bank hardest-hit by the credit crisis, added 9.8% to 12.97 Swiss francs, extending its eight-day gain to 51%.
Switzerland’s biggest bank offered to buy back €1 billion (Rs6,830 crore) 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 UK’s biggest mortgage lender, surged 26% to 60.1 pence. Barclays Plc., the third largest British bank, rose 17% to 112 pence.
Xstrata, which produces copper and is the world’s biggest exporter of power station coal, gained 13% to 430 pence. StatoilHydro ASA, the largest offshore oil and natural gas operator, added 3.9% to 118.7 kroner (Rs748.10).
Copper for three-month delivery advanced 4.4% to $3,930 a tonne 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, soya beans and wheat gained on an outlook for increased demand for US crops. May-delivery wheat advanced as much as 2.6% to $5.4375 a bushel. Soya beans for May delivery rose as much as 3% to $9.425 a bushel.
Mitsubishi UFJ rose 2.3% to 489 yen (Rs259.17). Mizuho Financial Group Ltd, Japan’s second biggest lender, gained 1.5% to 209 yen.
The Bank of Japan said on Wednesday it will buy 1.8 trillion yen of government debt from banks each month, up from 1.4 trillion.
The central bank said on 17 March that it may provide as much as 1 trillion yen in subordinated loans to banks.
Jakob Lindstroem in Stockholm contributed to this story.