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World stocks keep firm tone after BoE, eyes on Trichet

Last Updated: Thursday, October 6, 2011 - 19:28

London: World stocks kept a firmer tone on Thursday after the Bank of England surprised the market by launching a fresh round of monetary easing this month, before cutting gains as the European Central Bank left interest rates on hold.

The euro hit the day's low and German government bonds rose after the ECB held interest rates at 1.5 percent, disappointing some who had expected a cut in borrowing costs this month.

Such expectations grew after the Bank of England pledged to buy a bigger-than-expected 75 billion pounds in assets to bolster the UK economy -- a move that pushed sterling to a 14-month low against the dollar.

Investors are now focusing on ECB President Jean-Claude Trichet's news conference at 1230 GMT -- his last, and at which he is expected to announce a set of fresh liquidity measures to help banks.

Growing hopes that policymakers would take coordinated steps to support European banks, under threat from the impact of a possible Greek debt default, kept the underlying tone positive for risky assets.

European Commission President Jose Manuel Barroso proposed a coordinated recapitalisation of banks to restore confidence, while the European Banking Authority said it was examining the resilience of lenders' capital positions.

Optimism over near-term policy measures -- both from politicians and central banks -- are helping investors to take a break from a sell-off triggered by growing concerns about the damage to the banks from any Greek sovereign default.

"It's a good injection of capital. We now just need to see a coordinated effort from the rest of Europe to sort out the recapitalisation of European banks and it should form a decent base to move forward," said IG Index sales trader Yusuf Heusen.

"It takes away quite lot of risk. This is positive for the market."

The MSCI world equity index rose 1 percent, off the day's highs, having hit a 15-month low earlier this week. The index is now around 6 percent above that point.

US stock futures were up 0.1 percent, pointing to a slightly higher open on Wall Street.

European stocks rose 1 percent and emerging stocks added 2.6 percent.

The dollar rose 0.3 percent against a basket of major currencies. The euro fell 0.5 percent to USD 1.3264.

"The ECB is now likely to prepare an interest rate cut within the next four months, by March at the latest," said Berenberg Bank economist Holger Schmieding.

Sterling hit a 14-month low of USD 1.5270 after the BoE announcement.

Bund futures erased earlier losses to rise 17 ticks on the day.

The cost of insuring peripheral euro zone debt against default fell earlier. Five-year credit default swaps on Italian government debt fell 18 basis points to 450 bps, according to data monitor Markit.

Equivalent CDS prices fell for Spain, Portugal and Belgium.

US crude oil gained 0.7 percent to USD 80.28 a barrel.

Bureau Report

First Published: Thursday, October 6, 2011 - 19:28
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