Emerging-Market Stocks Rebound on Bailout Plans; Brazil Rallies

By Denis Maternovsky and James Attwood

Oct. 13 (Bloomberg) -- Emerging-market stocks rebounded from their worst week in at least a decade as world leaders agreed to support banks, easing concern that the credit crisis will stifle developing economies. Bonds declined.

The benchmark index rose the most in almost a month after losing a fifth of its value last week. Banco do Brasil SA led a rally in Brazilian banks after the government eased reserve requirements for the fourth time in a month to unfreeze lending. ICICI Bank, which has suffered the biggest losses on overseas investments among Indian banks, climbed to a record.

``Things got way oversold so there's some bargain hunting going on,'' said Greg Lesko, who helps manage $1 billion at Deltec Asset Management in New York. Emerging-market earnings growth will slow next year ``but it's going to be positive growth and stocks were pricing in a worse scenario than that.''

The MSCI Emerging Markets Index rose 7.9 percent to 638.83 points as the Latin American benchmark jumped 19 percent, the most since at least 1987. Brazil's Bovespa gained 15 percent after the government injected as much as $46 billion into the financial system. China's CSI 300 Index climbed 4.1 percent to 1,985.49, the first gain for the benchmark index in six days. Persian Gulf shares rose, driving benchmark indexes in Dubai and Abu Dhabi to their biggest gains in at least four years, as the United Arab Emirates said it will guarantee bank deposits.

The Federal Reserve, European Central Bank and the Bank of England will offer financial institutions unlimited dollar funds for the first time in an attempt to break the squeeze in money markets.

`Maximum Overweight'

Morgan Stanley raised its allocation of emerging-market stocks to ``maximum overweight'' based on forecasts for stronger economic growth.

``We believe the world economy is in a painful transition to becoming emerging market-led,'' strategist Jonathan F. Garner wrote in a report today. All gross domestic product growth in 2009 will come from countries such as China, Russia and Brazil, he said.

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 78 basis points to 6.49 percentage points, the highest spread since April 2003, according to JPMorgan Chase & Co.'s EMBI+ index. European leaders agreed this weekend to guarantee new bank refinancing and use government money to prevent lenders collapsing.

``Global investor risk sentiment has improved,'' Neil Shearing, an emerging markets economist at Capital Economics in London, said in a phone interview. ``There seems to be some kind of hope that a complete financial meltdown has been avoided.''

Banco do Brasil, Latin America's largest lender by assets, jumped 21 percent to 16.90 reais in the steepest gain since Bloomberg records began in January 1995. Petroleo Brasileiro SA, Brazil's state-run oil company, advanced the most in a year, climbing 12 percent to 26.90 reais as oil rebounded from a 13- month low.

Russia Declines

India's Sensex Index jumped 7.4 percent, its biggest one-day surge in more than four years, after ICICI Bank Ltd. Chief Executive Officer K.V. Kamath said the Mumbai-based lender has sufficient funds. ICICI Bank climbed 17 percent to 425.15 rupees.

South Korea's Kospi Index rose 3.8 percent to 1,288.53, the index's biggest increase since Sept. 19.

Indexes in Europe also gained, with the exception of Russia. The nation's Micex Index dropped 4.9 percent to 666.37. The measure was halted for an hour at 3:08 p.m. local time after a technical index declined more than 5 percent, Interfax reported. The dollar-denominated RTS Index slid 6.3 percent to 791.2. Trading in both indexes was suspended Oct. 10.

``The movements in Russian stocks still seem to be driven by fear and panic,'' Shearing said. ``They can't keep halting trading because once it's ingrained in investors' minds that they will halt once it starts to fall it just exacerbates the problem as they try to get rid of assets.''

Gulf Shares Advance

Poland's WIG20 Index gained 1.2 percent to 2,015.39 in Warsaw. Romania's Bucharest Trading Index added 8.5 percent to 3,458.38. The Czech Republic's benchmark PX Index advanced 10 percent to 981.50.

The Dubai Financial Market General Index jumped 11 percent to 3,343.56, its biggest one-day surge since Bloomberg began tracking the index in December 2003. The measure has still declined 19 percent this month. The Abu Dhabi Securities Exchange General Index soared 6.9 percent, the largest gain since at least September 2001, according to data compiled by Bloomberg.

The U.A.E. will guarantee the deposits of local and foreign banks operating in the country for three years, the state news agency reported today.

To contact the reporters on this story: James Attwood in Santiago at jattwood3@bloomberg.net