European Stocks Advance, Led by Banks; U.S. Index Futures Rise

By Sarah Jones

Oct. 3 (Bloomberg) -- European stocks advanced and U.S. index futures climbed on growing speculation central banks will lower interest rates and more U.S. lawmakers will support a $700 billion bank-rescue package.

HBOS Plc and Lloyds TSB Group Plc rallied more than 8 percent as economists changed forecasts, predicting the Bank of England will cut its key rate by the most since 2001 next week. Hypo Real Estate Holding AG surged 47 percent after European Union regulators approved the German government's proposed rescue aid for the bank. Wachovia Corp. jumped 71 percent after Wells Fargo & Co. agreed to buy the company.

Europe's Dow Jones Stoxx 600 Index added 0.5 percent to 255.6 as of 2:22 p.m. in London, trimming this week's decline to 3.9 percent. Futures on the Standard & Poor's 500 Index rose 1 percent, while the MSCI Asia Pacific Index fell 2 percent.

Central banks ``are probably getting ready to slash rates,'' said Marino Valensise, chief investment officer at Baring Asset Management Ltd. in London. ``I definitely expect the Bank of England to do something. Inflation will fall like a stone in next three to six months. Central banks should act sooner rather than later.''

Investors raised bets the Federal Reserve will cut interest rates after a report showed the U.S. lost the most jobs in five years in September and earnings rose less than forecast as the credit crisis deepened the economic slowdown.

The data also may also increase pressure on lawmakers to approve the bailout plan to support the economy.

Raising Bets

Futures on the Chicago Board of Trade show an 94 percent chance the Fed will reduce its target rate for overnight bank loans by a half-percentage point to 1.5 percent at its Oct. 29 meeting and 6 percent odds of a 0.75 percentage-point cut. Yesterday, no one was predicting a reduction to 1.25 percent.

At least eight lawmakers in the House of Representatives who voted against the rescue plan this week said they now support the measure. Four others said they may switch their ballots on the bill, which failed on Sept. 29. A vote on the rescue plan is expected today.

The MSCI World Index tumbled 28 percent this year as bailouts of financial companies worldwide accelerated and bank credit losses and writedowns approached $600 billion. The index for 23 developed countries is valued at 13.6 times the earnings of its companies, the lowest since at least 1995, according to data compiled by Bloomberg. Europe's Stoxx 600 trades at 10.7 times earnings, near the lowest since at least 2002, while the S&P 500 is valued at 21.2 times earnings.

HBOS, Lloyds

HBOS, the mortgage lender that agreed to be bought by Lloyds TSB, increased 14 percent to 193.5 pence. Lloyds TSB rallied 8.8 percent to 285.25 pence.

Royal Bank of Scotland Group Plc jumped 11 percent to 194.5 pence.

Economists at Citigroup Inc., BNP Paribas SA, JPMorgan Chase & CO. have changed their forecasts to predict a half-point reduction from the current 5 percent on Oct. 9.

Hypo Real Estate surged 2.52 euros to 7.83 euros. The European Commission said in an e-mailed statement that the German government's proposed rescue aid for the bank, which involves 35 billion euros ($48.3 billion) in loan guarantees for the Munich-based commercial-property lender, complies with competition rules on rescue aid.

Wachovia jumped 71 percent to $6.70. Wells Fargo, the biggest U.S. bank on the west coast, agreed to buy the Charlotte, North Carolina-based lender in a deal valued at about $15.1 billion. Wachovia shares had tumbled 90 percent this year through yesterday as mortgage-related losses eroded its capital.

Regal Petroleum

Regal Petroleum Plc surged 23 percent to 102.25 pence after the Daily Telegraph reported Royal Dutch Shell Plc, Europe's largest oil company, has proposed a $1.2 billion takeover of the oil-and-gas explorer.

The Financial Times reported that Regal Petroleum confirmed it has been approached by a number of groups ``about possible takeovers or asset deals.'' It also cited one person familiar with the company as saying Shell had made an approach valuing Regal at $1.2 billion.

Total SA led energy companies lower as crude fell for a third day in New York, poised for the biggest weekly drop since 2004, on concern a recession will reduced fuel demand in the world's largest energy user.

Europe's third-largest oil company fell 1.7 percent to 40.67 euros. Royal Dutch Shell Plc, the region's biggest energy producer, declined 1.2 percent to 1,564 pence. Tullow Oil Plc lost 2.7 percent to 621.5 pence.

Commodities Tumble

Japan's Mitsubishi Corp., which generates more than half of its profit from commodities dealing, lost 5.2 percent to 1,938 yen. JSW Steel Ltd. dropped 7 percent to 424.20 rupees. India's third-biggest steelmaker said it may cut prices for a second month because of declining global prices for the alloy.

Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have tumbled 9.9 percent this week, the most since at least 1956.

InBev NV, the brewer that's buying Anheuser-Busch Cos. for $52 billion, declined 4.2 percent to 39.91 euros as the company said demand is slowing in Russia and Ukraine ``contrary to the market's original expectations of strong growth.''

InBev forecast a ``low, single-digit'' percentage gain in third-quarter beer shipments and announced plans to raise $9.8 billion in a rights offer, which will run from Oct. 16 to Oct. 30.

Tandberg ASA sank 10 percent to 63.9 kroner as the world's biggest maker of videoconferencing equipment ended takeover talks to be bought by a private-equity investor amid financial market turmoil.

To contact the reporter on this story: Sarah Jones in Copenhagen at sjones35@bloomberg.net.