World stocks rise ahead of US stress tests results

European stocks extended their rally today and U.S. markets opened higher ahead of the formal release of the results for the U.S. government's stress tests of the country's biggest banks.
MAY 07, 2009
European stocks extended their rally today and U.S. markets opened higher ahead of the formal release of the results for the U.S. government's stress tests of the country's biggest banks. European indexes remained higher after the European Central Bank cut its main interest rate by a quarter point to 1 percent. The ECB also announced it will purchase euro-denominated covered bonds and offer longer-term credit to banks as it moves to get more money flowing through the 16-nation euro zone economy. Meanwhile, the Bank of England kept official interest rates on hold at a record low of 0.5 percent — but increased its program to buy assets from banks to boost the amount of money in the economy. In afternoon European trading, Britain's FTSE 100 was up 2.5 percent to 4,504.90, Germany's DAX rose 1.3 percent to 4,944.32, and France's CAC 40 jumped 1.7 percent to 3,338.15. In the U.S., markets opened higher as investors anticipated results for the stress tests — due to be released after the U.S. market closes — and digested economic data on retail sales and unemployment claims. Government figures showed new claims for jobless benefits unexpectedly dropped last week to their lowest level since January, although the number of unemployed workers getting benefits climbed to a new record. Meanwhile, retailers including Wal-Mart Stores Inc. reported better-than-expected April sales. The world's largest retailer said sales of Easter merchandise and higher traffic helped its sales jump 5 percent, much more than the 2.9 percent rise analysts had forecast. The Dow Jones industrial average opened up 0.1 percent at 8,523.67 and the Standard & Poor's 500 index rose 0.3 percent to 922.64. Earlier, Asian stocks had pressed higher as early reports about the U.S. stress tests, designed to determine which banks would need more capital to offset loan losses if the economy weakens further, helped reassure many investors that a global economic recovery is on the horizon. Findings of the government's long-awaited tests of 19 banks leaked out Wednesday, a day ahead of the official announcement. Investors seemed relieved by media reports indicating the balance sheets of top U.S. banks weren't as bad as feared, though Bank of America and others were still facing huge capital shortfalls should the economy worsen. Some already had enough funds to weather the downturn. "One can view the stress tests as a success because they apparently increased confidence in the financial sector," said Adrian Mowat, chief Asian equities strategist at JP Morgan in Hong Kong. Bank stocks in Asia and Europe soared, in line with huge overnight gains by their American peers. A notable exception was Societe Generale, which fell 5.4 percent after it said it returned to a loss in the first quarter due to nearly euro2 billion ($2.7 billion) in new writedowns and provisions. Better news came from Barclays PLC, which reported first-quarter net profit rose 12 percent as investment banking profits surged from the acquisition of U.S. assets of bankrupt Lehman Brothers. The bank still posted a steep 79 percent increase in writeoffs on bad investments. But it was the U.S. government's stress tests that concerned investors most, as a mood of optimism continued to pervade the markets. "All eyes are still going to be on the stress tests later today, even though we have had a lot of information already leaked," said James Hughes, market analyst at CMC Markets in London. "It seems that the rally is pretty much relentless at the moment," he added. "If you look at the fundamentals at the moment, why is this market up, it really shouldn't be at the moment because of so much poor information. There's optimism with banks which is helping things at the moment, that the stress tests aren't going to be as bad as first thought and things may be starting to turn the corner." Japanese shares led the Asian rally, with the Nikkei 225 index surging 408.33 points, or 4.6 percent, to 9,385.70 — a six-month high — as investors returning from a three-day holiday played catch up with gains on other regional markets. Mitsubishi UFJ Financial Group Inc. shot up nearly 16 percent, despite warning last week it would post a $2.6 billion group net loss for last fiscal year. Hong Kong's Hang Seng rose 2.3 percent to 17,217.89 and South Korea's Kospi inched 0.6 percent higher at 1,401.08. Elsewhere, Australia's benchmark rose about 1.5 percent, while Chinese and Taiwanese markets recovered from early losses to post increases. Oil prices extended their gains to near six-month highs on expectations that economic growth may begin to rebound by the end of the year. Benchmark crude for June delivery was up $2.08 to $58.42 a barrel in European trading. The contract Wednesday rose 4.6 percent, or $2.50, to settle at $56.34, the highest level since mid-November.

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