Thursday, April 2, 2009

Stocks, Commodities Gain on Economy; Yen, Treasuries Decline

By Daniel Hauck

April 2 (Bloomberg) -- Stocks rallied around the world, oil and metals rose and the yen dropped as Group of 20 leaders met to discuss stimulus plans amid mounting evidence the worst of the global recession may be over.

Europe’s Dow Jones Stoxx 600 Index advanced 4 percent and futures on the Standard & Poor’s 500 Index climbed 2.4 percent. The MSCI Asia Pacific Index rallied 4.5 percent, the biggest gain this year, and Hong Kong’s Hang Seng Index surged 7.4 percent to erase its 2009 loss. Crude added 5.4 percent to $51 a barrel in New York and copper gained for a third day, leading industrial metals higher with a 1.9 percent advance on the London Metals Exchange.

The yen weakened the most against commodities exporters, losing 2.3 percent versus the Australian dollar, 1.9 percent against the New Zealand dollar, and 2.3 percent compared with the South African rand. The cost of insuring European corporate debt from default fell for the first time in five days.

“What is most encouraging for the G-20 leaders summit in London today is the building evidence that the Lehman-related collapse in global demand seems to be coming to an end,” Derek Halpenny, London-based European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd., said in a report today. There is “hope that this shock is now ending,” he wrote.

Lehman Collapse

Some reports from the U.S., China and U.K. suggest the pace of economic decline may be easing and credit markets are showing signs of recovering after the September bankruptcy of New York- based Lehman Brothers Holdings Inc., the biggest in American history. Auto sales in the U.S. rebounded from a 27-year low this month, while durable-goods orders and home sales rose in February. Chinese urban investment surged 26.5 percent in the first two months of the year.

U.S. Treasury Secretary Timothy Geithner said yesterday in a Bloomberg Television interview that there are “encouraging signs” that financial markets are recovering as mortgage rates and interest costs fall and the government takes steps to restart lending for students, small businesses and cars.

The difference between yields on 30-year, fixed-rate mortgages and 10-year Treasury notes narrowed to 2.35 percentage points from a high of 3.05 percentage points at the end of last year, according to data compiled by Bloomberg. The average gap over the past 10 years is 1.55 points.

‘Comforting the Market’

“Investors are relieved,” said Bruno Ducros, a fund manager at Cardif Asset Management in Paris, which oversees about $2.6 billion in stocks. “Production is recovering and that’s supporting the market. The G-20 is showing a certain mobilization by politicians. All of these elements are comforting the market.”

U.S. financial shares rose before a vote today by the Financial Accounting Standards Board on an overhaul of accounting rules that may increase profits at banks by more than 20 percent. Changes proposed on March 16 to fair-value accounting would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage- backed securities.

Citigroup Inc., based in New York, climbed 9 percent, while Charlotte, North Carolina-based Bank of America Corp. added 7.5 percent in pre-market trading.

The European Central Bank may cut its key interest rate to a record low of 1 percent today, according to a Bloomberg survey of 55 economists.

The pound strengthened 0.7 percent to $1.4568 after an industry report showed U.K. house prices unexpectedly rose in March for the first time since October 2007.

Gilts, Treasuries

U.K. gilts fell as the government sold 2.25 billion pounds ($3.29 billion) of 30-year bonds, the longest-dated securities offered since the Treasury was unable to find enough buyers at an auction of 40-year debt last week. The bonds were sold at an average yield of 4.257 percent and investors bid for 1.59 times the amount of securities sold.

Treasuries slid for the first time in four days, sending the 10-year note’s yield four basis points higher to 2.70 percent, as gains in equities damped demand for the relative safety of government assets. Investors may require higher yields to keep buying U.S. debt as President Barack Obama’s government borrows record amounts to try to end the U.S. recession, Goldman Sachs Group Inc. said in a report yesterday.

The U.S. needs to borrow $3.25 trillion for the fiscal year ending Sept. 30, including sales to replace maturing securities, according to Goldman.

Russia, Eastern Europe

Investors are buying Russian corporate bonds and Polish and Czech stocks.

Russia’s biggest company, OAO Gazprom, is selling the first international corporate bond from the country since July, according to data compiled by Bloomberg. Gazprom, which supplies a quarter of Europe’s gas, will sell more than 200 million Swiss francs ($174 million) of two-year notes, according to bankers involved in the sale.

The MSCI Emerging Markets Index rose 4.2 percent to a three-month high on speculation more countries may follow Mexico in taking advantage of new loan conditions from the International Monetary Fund.

Poland’s WIG 20 Index rallied 4 percent, the Czech PX Index jumped 5.3 percent and Russia’s Micex Index rose 4.4 percent.

Mexico asked for a $47 billion credit line from the IMF yesterday, the most since the so-called Tequila Crisis in 1995. The IMF said last month it would relax loan conditions for developing countries that have low inflation, moderate levels of foreign debt and sound public finances.

Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings dropped 19 basis points to 943, according to JPMorgan Chase & Co. prices at 8:20 a.m. in London.

Credit-default swaps, contracts to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

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