European Stocks, U.S. Futures Advance on Rate-Cut Speculation

By Michael Patterson

Oct. 7 (Bloomberg) -- European stocks and U.S. index futures rose as Australia's bigger-than-expected interest-rate cut spurred speculation central banks around the world will reduce borrowing costs to cushion their economies from the credit freeze.

Asian shares pared losses, the yen retreated and Treasuries fell after Australia lowered its key rate by one percentage point. Total SA, Europe's third-largest oil company, gained 4.1 percent after crude increased for the first time in five days. Nokia Oyj, the world's biggest maker of mobile phones, rallied 3.1 percent as Morgan Stanley recommended the stock.

``If Europe had a surprise cut and you see this coordinated rate cut emerging, that would cause the markets to bounce,'' said Edward Collins, a London-based money manager at New Star Asset Management Group Plc, which has about $35 billion, in a Bloomberg Television interview. ``It's all to do with confidence.''

Europe's Dow Jones Stoxx 600 Index tumbled the most since 1987 yesterday as bank bailouts spread and falling commodities dragged down raw-materials producers. The Dow Jones Industrial Average fell as much as 800 points, then recouped more than half its losses in the final 75 minutes of trading on speculation the Federal Reserve will lower rates.

Europe's Stoxx 600 advanced 2.6 percent to 247.68 at 8:05 a.m. in London as all 18 industry groups increased more than 1 percent. Futures on the Standard & Poor's 500 Index rose 1.7 percent. The MSCI Asia Pacific Index fell 1.1 percent, after earlier dropping as much as 3.2 percent.

`Pinning Hopes'

``European markets are pinning all their hopes on a series of coordinated rate cuts,'' said Oliver Stevens, head of dealing at IG Markets in Melbourne.

The Stoxx 600, down 34 percent this year, is valued at 10.05 times the reported earnings of companies in the index, the cheapest since Bloomberg began compiling the data in January 2002.

The yen fell from a three-year high against the euro, and Treasuries retreated for the first time in a week after Australia cut its key rate by the most since a recession in 1992 and twice as much as most economists forecast.

At least two dozen central banks around the world are scheduled to meet this month, according to Bloomberg data. The Bank of England, set to meet on Oct. 9, should cut its key lending rate by a half point to 4.5 percent, the British Chambers of Commerce said today.

Rate Cut

There's speculation ``that the next step will be for central banks to drop interest rates, possibly in a coordinated move,'' Matthew Buckland, a dealer at CMC Markets in London, wrote in a note to clients. ``This would certainly send a message to the markets, but again the success in sustaining a rally here would presumably be reliant on traders overlooking the panic aspects of this outcome.''

Fed Chairman Ben S. Bernanke and his fellow global policy makers may move to unblock markets for loans between banks and commercial paper as additional steps to combat the credit crisis. Bernanke yesterday signaled he's preparing measures with Treasury Secretary Henry Paulson to unfreeze markets where loans aren't secured by assets.

Bernanke is set to speak on the economic outlook from 12:30 p.m. in Washington today. He and Paulson will meet with European Central Bank President Jean-Claude Trichet and their other Group of Seven major-nation counterparts Oct. 10 in Washington.

Futures on the Chicago Board of Trade show a 58 percent probability the Fed will reduce its 2 percent target rate by three-quarters of a percentage point to 1.25 percent at its Oct. 29 meeting. Traders saw no chance of a cut of that magnitude a month ago. The odds of a half-point reduction are 42 percent.

Russian Delays Trading

Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co., said yesterday that the Fed should cut its target rate for overnight loans to banks to 1 percent from the current 2 percent.

Russian regulators delayed the start of trading today on Moscow's Micex Stock Exchange and RTS after shares tumbled the most ever yesterday.

European finance ministers failed to agree on steps to shore up the banking system hours after their countries' leaders pledged to do whatever was needed to restore confidence. There appeared to be little support for suggestions from France and Italy that Europe create a U.S.-style bank rescue fund at yesterday's monthly meeting of euro-area finance ministers in Luxembourg.

The U.S. Congress approved a $700 billion plan to buy mortgages and other debt-related securities from banks last week.

U.K. Banks

U.K. Chancellor of the Exchequer Alistair Darling discussed last night with leading bankers a plan to shore up the banks by channeling taxpayers' money into them, in effect partly nationalizing them, the Financial Times reported, citing unidentified government officials.

Total gained 4.1 percent to 40.44 euros. BP Plc, Europe's second-biggest oil company, rose 2.4 percent to 440.25 pence.

Crude for November delivery jumped as much as $2.94, or 3.4 percent, to $90.75 a barrel in New York as some traders deemed yesterday's 6.5 percent decline excessive and investors speculated OPEC may announce output cuts at its December meeting as demand slows. Gasoline, natural gas and heating oil also rose.

Nokia climbed 3.1 percent to 12.59 euros after Morgan Stanley analysts rated the shares ``overweight'' in new coverage and said they may climb 37 percent on the company's ``brand leadership, strong management and financial firepower.'' They set a price estimate of 17.50 euros on the stock.

Alcatel-Lucent SA rallied 5.4 percent to 2.399 euros. The world's largest provider of fixed-line networks was also initiated with an ``overweight'' recommendation and price estimate of 4 euros at Morgan Stanley.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.