December 8, 2008 / 6:44 PM / in 9 years

GLOBAL MARKETS-World stocks surge on economic stimulus hopes

* Equities up on economic stimulus plans

* Bond yields rise, U.S. dollar slips

* US automakers bailout hopes also help

By Jeremy Gaunt and Chuck Mikolajczak

LONDON/NEW YORK, Dec 8 (Reuters) - Stock markets around the world rebounded on Monday, helped by several governments reinforcing their plans for countering the global economic crisis and by signs the U.S. was close to providing emergency finance for its automakers.

Bond yields rose as a result and the U.S. dollar slipped as the need for a safe haven diminished.

There’s “some chance” that equities markets made a bottom on Nov. 21, Bob Doll, global chief investment officer for equities at fund manager, BlackRock (BLK.N), told Reuters.

“I think we’ve broken the downtrend and gone sideways,” he said.

European Union leaders met to discuss proposals to give the eurozone ecomomy a 200 billion euro boost, India announced a $4 bln spending package, and U.S. President-elect Obama reiterated his plan for a massive public works program over the weekend. [ID:nHKG329944].

In the U.S. the Dow Jones industrial average .DJI was up 2.65 percent at 8,865.325 at midday, while the Standard & Poor's 500 Index .SPX was up 2.59 percent at 898.78, and the Nasdaq Composite Index .IXIC was 3.23 percent higher at 1,558.04

The advance pushed the S&P 500 index into positive territory for the month and extended the index’s recovery since it hit an 11-year low on Nov 21. The index is up 20 percent since Nov. 21 but remains 38.6 percent lower on the year.

Companies associated with large construction projects, such as Dow component Caterpillar (CAT.N) were among the top gainers. Shares of Caterpillar, a maker of construction and mining equipment, climbed over 14 percent to $43.66 on the New York Stock Exchange.

“Look at the sectors that are working, anything infrastructure-related is getting a lift,” said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland. “Definitely the people who make ‘stuff’ is on the on the upside.”

Signals that the three U.S. automakers -- General Motors (GM.N), Ford (F.N) and Chrysler -- were closer to procuring a financial lifeline from the government to stave off possible bankruptcy also boosted investor sentiment. Both GM and Ford soared over 14 percent.

The FTSEurofirst 300 .FTEU3 index of top European shares closed 6.9 percent higher at 848.48 points.

The Morgan Stanley Capital World Stock Index .MIWD00000PUS was up 5.1 percent at midday in New York.

BOND YIELDS RISE

U.S. Treasuries prices fell on Monday as global stock market gains drew investors into riskier assets and away from safe-haven U.S. government debt.

Benchmark 10-year Treasury notes US10YT=RR were down 5/32 around midday on Monday, yielding around 2.73 percent.

The Fed is expected to cut the federal funds rate by 50 basis points to 0.5 percent at its policy meeting next week, according to a Reuters poll, but huge amounts of new Treasuries are expected to be issued to help pay for the U.S. bailout of the banking system and the economy.

In Europe, the 10-year Bunds EU10YT=RR yielded 3.145 percent, up 12 basis points on the day and well off Thursday’s low of 2.939 percent, the lowest in over 30 years.

“Bonds have had such a phenomenal rally that it just needs stability in stocks to make them backtrack,” said Steve Barrow at Standard Bank.

US DOLLAR SLIPS

The U.S. dollar fell against the euro and most other major currencies on Monday as talk of an imminent bailout deal for the three U.S. automakers boosted stocks around the world and helped to ease risk aversion.

The rise in benchmark world stock indexes sent the low-yielding Japanese yen and U.S. dollar lower against the Australian dollar, sterling, and other currencies offering higher interest rates but also higher risk.

Midway through the New York session, the euro EUR= traded 1.7 percent higher at $1.2947, after jumping as high as $1.2954, its highest level since November 28.

The euro EURJPY= also rose 1.6 percent to 120.20 yen, having climbed as high as 120.99 yen, according to Reuters data, as the euro was boosted by higher regional shares.

Against the yen, the U.S. dollar JPY= traded 0.1 percent higher at 92.93 yen, but well off the session high of 93.91 yen.

“The central banks have done their job and now the focus is on governments -- in addition to Obama’s plan we have stimulus packages from India, Australia and China,” said Thierry Lacraz, strategist at Pictet in Geneva. “While this will not avoid a recession, investors at least have the feeling that the people in charge are doing the right thing.”

Additional reporting by Ellen Freilich and Nick Olivari in New York, and Sarah Marsh and Ian Chua in London

Our Standards:The Thomson Reuters Trust Principles.
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