Global equities gain as Fed speculation swirls
Strong corporate earnings and speculation about another cut in U.S. interest rates boosted stocks on Thursday but the Bank of England issued a stark warning that all is not over in the credit crisis.
Bond prices fell and currencies were generally flat. Oil rose above $88 a barrel on supply worries.
MSCI's main world stock index gained about 0.4 percent while its emerging market index was up 1.2 percent for a year performance of around 40 percent.
Markets were subject to intense speculation that the U.S. Federal Reserve will cut rates.
Data on Wednesday showing the U.S. housing market had taken a sharp turn for the worse in September cemented expectations of a cut at next week's Fed meeting and even fuelled talk of a more immediate cut in the discount rate offered to banks.
Investors have been battered recently by growing worries about the U.S. economy, signs that the credit crisis is biting -- Merrill Lynch reported $7.9 billion in write-downs for bad debt -- and rising oil prices.
Anticipation of another Fed easing move to provide some relief has grown significantly, UBS's foreign exchange strategists said in a note.
This boosted European stocks but they were equally encouraged by forecast-beating earnings from France Telecom and Swiss engineering group ABB.
The pan-European FTSEurofirst 300 index was up 0.9 after falling 0.5 percent on Wednesday.
What's coming though in many cases (results) is that the U.S. is not as strong as it was but not a disaster and the emerging market demand is actually accelerating if anything, said Andrea Williams, head of European equities at Royal London Asset Management.
SPECTRES
Despite the relative bullishness on equity markets, investors got a sharp warning from the Bank of England not to assume that the summer's credit crisis had passed.
In the short run, the financial system in the advanced economies remains vulnerable to further adjustments, whether in the credit markets ... or, for example, in the equity or commercial property markets, the central bank said in its twice-yearly Financial Stability Report.
Oil prices, seen as another threat to world growth, did little to ease underlying worries.
Brent crude hit all-time highs and U.S. oil prices surged more than $1 to above $88 after a slide in U.S. oil stocks renewed fears of an energy crunch in the northern hemisphere's winter heating season.
U.S. oil prices are up 44 percent this year but still below last week's all-time peak of $90.07.
On foreign exchanges, the dollar was flat against major currencies with the positive tone on equity markets helping calm a market looking to the Fed.
The euro was within a cent of its lifetime high just shy of $1.4350 and the dollar close to a post-Bretton Woods record low of 77.093 on an index basis struck on Monday.
Euro zone government bond prices eased. December Bund futures traded down 23 ticks on the day at 113.92.
Ten-year cash yields rose to 4.17 percent and two-year yields rose to 3.95 percent.
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