London: World stocks rose for a second straight day on Thursday while the euro extended its hefty gains as expectations grew the European Central Bank might deliver measures to alleviate worries over euro zone debt.
The cost of insuring peripheral euro zone debt against default eased and yield spreads of peripheral issues over German Bunds also narrowed as hopes grew for decisive steps to stop the crisis from spreading to larger economies such as Spain.
Analysts cautioned there was scope for disappointment, saying the ECB was unlikely at this stage to expand its bond purchase programme.
“The focus is on whether (ECB President Jean-Claude) Trichet will announce a numerical target for bond purchases,” said Roberto Mialich, currency strategist at Unicredit in Milan.
“If he keeps to saying they are ready to buy more bonds but without a numerical target, the markets will be disappointed and turn negative on the euro.”
MSCI world equity index rose 0.8% to a one-week high, having hit its weakest level in nearly two months earlier this week.
Despite recent volatility, the MSCI index is still up 5.8% on the year, having risen more than 31% last year. US stock futures rose around 0.3%, pointing to a firmer open on Wall Street.
The FTSEurofirst 300 index rose half a% while emerging stocks gained 1.2%.
The euro gained 0.4% to $1.3194 after posting its biggest one-day rise in more than a month on Wednesday from an 11-week low on Tuesday. The dollar fell 0.3% against a basket of major currencies.
“Decisive action by governments and the ECB would be required to prevent a further deterioration of funding conditions for European sovereigns and banks,” Morgan Stanley said in a note to clients.
“However, the steps that are likely to be taken in the near term probably won’t suffice to end the crisis and prevent a spreading of debt worries from the periphery into the core, which has been our dreaded base case all year.”
The yield premium for 10-year Spanish bonds over their German counterparts fell, indicating less investor unease over Madrid’s ability to finance itself.
Five-year credit default swaps for Greece, Ireland, Spain and Portugal fell.
The spread between 10-year Spanish and German debt narrowed for a second day, by 10 basis points to 246 basis points, down from a euro lifetime high of 290 basis points struck on Monday. Bund futures fell 50 ticks.