London: World stocks rose from last week’s three-month lows and government bonds fell on Monday as expectations grew that the US government will increase its stake in Citigroup, instead of fully nationalising the bank.
A source told Reuters that Citigroup is in talks that could result in the US government increasing its stake in the bank.
The Wall Street Journal said the government could own as much as 40% of the bank’s common equity by converting preferred shares it holds into common stocks. The plan would not cost further taxpayer money. The government currently owns a stake of nearly 8%.
The news calmed fears over the bank’s future and the prospect of a full nationalisation of the stricken lender, which not only depresses stocks but adds to the fiscal burden of the biggest world economy.
Shares in Britain’s partly-nationalised Royal Bank of Scotland jumped nearly 20 percent as it is expected to announce a restructuring to create a non-core division into which unwanted assets will be placed.
“Banks remain in focus, they are pivotal in terms of the market,” said Jeremy Batstone-Carr, analyst at Charles Stanley. “Efforts to ring-fence toxic assets at RBS and the fact there appears to be no all-out nationalisation of Citi is steadying the ship.” MSCI world equity index rose 1% after hitting its lowest since late November on Friday while the FTSEurofirst 300 index of leading European shares also rose 1 percent.
Emerging stocks rose 2% and US crude oil steadied at $40.02 a barrel. The March bund futures fell 44 ticks.
The dollar fell 0.4% against a basket of major currencies while the euro rose 0.6% to $1.2924.
“We doubt that the dollar sell-off overnight will be sustained and the currency is likely to remain a beneficiary as risk aversion rises once again,” Calyon said in a note to clients.
The low-yielding yen was down around 0.7% at $93.81 per dollar. Gold fell to $983.65 an ounce.