Global Stocks Climb, Euro Rises on Bailout Plan; Banks Advance

By Adria Cimino

Oct. 13 (Bloomberg) -- Stocks rallied worldwide, with the MSCI World Index rebounding from its worst week on record, after governments in Europe, the U.S. and Asia agreed to support banks and combat the credit crisis.

UBS AG, Deutsche Bank AG and ING Groep NV jumped more than 10 percent after European leaders agreed to guarantee new bank debt. Morgan Stanley surged 34 percent in Germany. The euro climbed the most in three weeks against the dollar, and oil rose from a 13-month low on speculation the bailout may avert a collapse of the financial system that threatens economic growth.

``They brought out the heavy artillery,'' said Aurore Wannesson-Raynaud, a strategist at Axa Investment Managers in Paris, which oversees about $830 billion. ``It's possible that the worst is behind us. We should see better days ahead.''

The MSCI World Index added 2.3 percent to 931.13 at 10:40 a.m. in London. The index tumbled 20 percent last week and is still down 41 percent this year. Futures on the Standard & Poor's 500 Index rose 4.9 percent. Europe's Dow Jones Stoxx 600 Index advanced 5.2 percent, while the MSCI Asia Pacific excluding Japan Index gained 7.4 percent.

Stocks rallied after the U.S. Federal Reserve said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt issues and permit governments to buy stakes and recapitalize some distressed financial companies.

National benchmark indexes climbed more than 4 percent in all of the 17 western European markets that were open. The U.K.'s FTSE 100 jumped 4.6 percent as BHP Billiton Ltd. and Royal Dutch Shell Plc rose. Germany's DAX advanced 5.8 percent. France's CAC 40 increased 5.8 percent as Total SA gained.

Bank Bonds

The cost of protecting bank bonds from default fell after the U.K. pledged 37 billion pounds ($64 billion) for Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc.

``There's a certain sense of relief,'' said Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees $5.5 billion. ``The banking system is the lung of the economy, so it has to be supported.''

The euro rose 1.9 percent, the most since Sept. 22, to $1.3657. It advanced 1.7 percent to 137.21 yen.

Money-market rates may decline after central banks offered unlimited dollar funds. The London interbank offered rate, or Libor, for three-month dollar loans will drop 9 basis points to 4.73 percent today, according to David Buik, a market analyst at BGC Partners.


The cost of borrowing in euros for one week fell the most since Dec. 28, according to the European Banking Federation.

$28 Trillion

Europe's Stoxx 600 has dropped 41 percent this year as concern that frozen credit markets will trigger a recession erased about $28 trillion in value from global stock markets. Financial firms have reported $635 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.

U.S. equity futures gained today after the worst week for stocks in 75 years and Asian shares rebounded from the worst week since at least 1987.

UBS, the European bank hardest hit by subprime-related losses, surged 16 percent to 19.68 francs. Deutsche Bank, Germany's biggest, surged 12 percent to 34.87 euros. ING, the largest Dutch financial-services provider, gained 13 percent to 11.72 euros.

Goldman Sachs Group Inc. raised its recommendation on European banks to ``neutral'' from ``underweight,'' citing the recent decline in valuations and central bank action to reduce risks for the industry.

Barclays Plc added 11 percent to 231.25 pence. The U.K.'s second-biggest bank plans to sell more than 6.5 billion pounds ($11 billion) of shares to private investors without turning to the government for help. Barclays won't pay a final dividend for 2008, the company said today.

Cede Control

Royal Bank of Scotland fell 23 percent to 55.4 pence, and HBOS dropped 28 percent to 89.1 pence. Lloyds gained 5.1 percent to 199 pence.

In exchange for the bailout, Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, the right to fix dividends, and power to set executives' pay.

Morgan Stanley surged 34 percent to $12.93 in Germany. The company is in talks with Mitsubishi UFJ Financial Group Inc. about altering the terms of the Japanese bank's pending $9 billion infusion into the Wall Street firm after its stock sank 60 percent last week, said a person familiar with the matter.

U.S. Treasury Secretary Henry Paulson said that pumping government funds into banks is a priority.

Valuations

The MSCI World Index closed last week valued at 11 times the earnings of its 1,730 companies. That was the cheapest since at least 1995, according to data compiled by Bloomberg.

Europe's Stoxx 600 traded at 8.5 times profit, the lowest level since at least 2002. The S&P 500, the benchmark for American equities, was valued at 17.2 times earnings, the cheapest in more than a year, after its steepest weekly retreat since 1933.

BHP Billiton, the world's biggest mining company, jumped 5.7 percent to 1,009 pence, while Rio Tinto Group, the third- largest, climbed 7.6 percent to 2,608 pence. Copper on the London Metal Exchange rose from a 33-month low after governments around the world agreed to support their financial systems.

Total SA, Europe's biggest oil refiner, gained 5.3 percent to 34.94 euros. Royal Dutch Shell, the region's largest energy company, advanced 5.5 percent to 1,374 pence.

Crude for November delivery rose as much as 5.1 percent to $81.67 on the New York Mercantile Exchange.

Royal Philips Electronics NV lost 6 percent to 14.83 euros. Europe's biggest television maker said it will slow down its 5 billion-euro ($6.8 billion) share buyback after third-quarter sales fell short of analysts' estimates.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.