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

By Lynn Thomasson and Adria Cimino

Oct. 13 (Bloomberg) -- Stocks rallied worldwide, with the Standard & Poor's 500 Index gaining the most since 1939, and oil climbed from a 13-month low after governments in Europe, the U.S. and Asia agreed to support banks.

Morgan Stanley surged 87 percent after changing terms of its $9 billion investment from Mitsubishi UFJ Financial Group Inc. UBS AG and ING Groep NV jumped more than 12 percent in Europe after the region's leaders said they would guarantee bank debt. The euro rose the most in three weeks against the dollar and yen on speculation the bailout may prevent more bank failures.

``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 S&P 500 rose 104.13 points to 1,003.35, rebounding from its worst week in 75 years. The Dow Jones Industrial Average increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since March 1933. Both gauges tumbled 18 percent last week. Europe's Dow Jones Stoxx 600 Index advanced 9.9 percent for the biggest daily gain, reflecting record increases in France and Germany, while the MSCI Asia Pacific excluding Japan Index jumped 7.4 percent.

Stocks climbed after the U.S. Federal Reserve said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt and permit governments to buy stakes and recapitalize some distressed financial companies. All 10 S&P 500 industries gained more than 7.3 percent.

Money-Market Rates

Money-market rates declined following the central banks' dollar measures. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.75 percent from 4.82 percent, the British Bankers' Association said.

The TED spread, the difference between what the U.S. government and banks pay for three-month dollars, narrowed 7 basis points to 457 basis points. The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 2 basis points to 362 basis points.

Morgan Stanley surged $8.42 to $18.10. Mitsubishi UFJ will receive preferred stock that pays a 10 percent dividend instead of common stock. Japan's biggest lender will get 21 percent of the New York-based company as previously agreed.

``This is a good day to buy,'' said Louis Navellier, who oversees $4.3 billion as chief executive officer of Navellier & Associates in West Palm Beach, Florida. ``I'm very, very comfortable we're at or near the bottom here.''

Alcoa Inc., Johnson & Johnson and Chevron Corp. rallied the most in at least 20 years, since Bloomberg began tracking the data. The stocks added more than 12 percent.

Valuations

The S&P 500, the benchmark for American equities, began today's trading valued at 18.2 times earnings of companies in the index, the cheapest in more than a year. Today's rally pushed its price-to-earnings ratio to 19.23. The MSCI World Index traded at 12.03 times the earnings of its 1,730 companies. Europe's Stoxx 600 was valued at 9.2 times profit, the lowest level since at least 2002, prior to the advance today.

The U.K.'s FTSE 100 jumped 8.3 percent as BHP Billiton Ltd. and Royal Dutch Shell Plc rose. Germany's DAX and France's CAC 40 rallied the most on record, advancing 11 percent.

The MSCI Latin America Index surged 17 percent, the most ever, as stock benchmarks in Mexico, Brazil, Chile and Peru increased more than 11 percent. Lojas Americanas SA, Brazil's biggest discount retailer, surged 19 percent to 5.95 reais after Morgan Stanley said the only economic growth next year will come from emerging markets. The MSCI Emerging Markets Index added 7.9 percent for the steepest advance in three weeks.

Default Protection

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.

Germany will provide as much as 500 billion euros ($681 billion) in loan guarantees and capital to bolster the banking system, the Finance Ministry said. Combined, France, Germany and Spain committed $1.3 trillion to secure interbank loans.

``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.''

Equity injections for U.S. firms will be voluntary, designed with attractive terms and aimed at ``healthy'' firms, said Neel Kashkari, the Treasury official overseeing the $700 billion rescue of the financial system, in a speech in Washington.

Mexico's peso rose the most since 1995 and Brazil's real had its biggest gain in six years as demand for higher-yielding assets climbed. The peso increased 5.4 percent to 12.4173 per dollar, stemming a three-week rout. Brazil's real gained 6.8 percent to 2.1667 per dollar.

Euro Gains

The euro rose as much as 2 percent, the most since Sept. 22, to $1.3682. It advanced 1.4 percent to 136.83 yen.

The MSCI World Index is poised for its worst annual performance ever after plunging 37 percent this year on concern frozen credit markets will trigger a recession. The decline in equities from Hong Kong to Lima erased about $28 trillion in value from the world's stock markets. Financial firms have reported $635 billion in losses and writedowns from mortgage- related investments since the beginning of last year.

``We were on the brink of an implosion,'' said Jacques- Antoine Bretteil, who manages about $312 million at International Capital Gestion in Paris. ``We've avoided the worst, but that doesn't mean all of the problems are over.''

Crude for November delivery rose 4.5 percent to $81.16 a barrel on the New York Mercantile Exchange. Copper, silver and natural gas also advanced.

BHP, Apple Advance

Exxon Mobil Corp. rose the most since October 1987, soaring 17 percent to $73.08. The world's largest oil company was raised to ``buy'' from ``neutral'' at Goldman Sachs Group Inc.

Petroleo Brasileiro SA, Brazil's state-controlled oil producer, gained 10 percent to 26.44 reais for the steepest gain in three weeks. Chevron surged 21 percent to $69.89.

BHP Billiton, the world's biggest mining company, jumped 9.1 percent to 1,041 pence, while Rio Tinto Group, the third-largest, climbed 15 percent to 2,797 pence. Freeport-McMoRan Copper & Gold Inc. added 25 percent to $45.37 as copper prices jumped the most in two years.

General Motors Corp. and Ford Motor Co., the largest U.S. automakers, surged more than 20 percent. GM, which posted the biggest advance in the Dow average today, held talks with Chrysler LLC about a possible merger, five people with knowledge of the talks told Bloomberg News.

Apple Inc. rose 14 percent to $110.26, the most since October 1999. Sanford C. Bernstein & Co. analyst Toni Sacconaghi upgraded the maker of Macintosh computers and the iPhone to ``outperform'' from ``market perform,'' saying the shares are ``overly discounted'' after plunging 46 percent in two months.

UBS, ING

UBS, the European bank hardest hit by subprime-related losses, surged 12 percent to 19.1 francs. ING, the largest Dutch financial-services provider, gained 27 percent to 13.26 euros. Deutsche Bank AG, Germany's biggest, surged 12 percent to 35.4 euros for the steepest increase since Sept. 19.

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 gained for the first time in five days, adding 3.7 percent to 215.25 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 8.4 percent to 65.7 pence, and HBOS dropped 28 percent to 90 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.

Still, the unprecedented government actions around the world to prop up lenders and stabilize credit markets may not signal the end of the crisis, according to investor Marc Faber, who predicted the 1987 stock-market crash.

``The next shoe to drop is more in the real economy, in corporate profits and in commercial real estate,'' Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom report, told Bloomberg Television. ``A global economic slump is unavoidable.''

Profits Miss

Alcoa, the biggest U.S. aluminum producer, and Bank of America Corp., the second-largest U.S. bank, posted the steepest retreats in more than two decades last week after third-quarter profits missed predictions by 28 percent and 69 percent. For the fourth quarter, analysts say companies in the S&P 500 will earn about $241 billion, the most ever.

Investors who are expecting a rebound after almost $7 trillion was erased from U.S. equity markets this year may be disappointed as earnings fail to match forecasts. S&P 500 companies that earned less than analysts estimated in the past year dropped 13 times more than the index's average decline, data compiled by Bespoke Investment Group LLC show.

Iceland suspended stock trading for a third day after the government seized Kaupthing Bank hf, the country's biggest bank. Pakistan stocks were little changed today as the Karachi Stock Exchange kept trading restrictions in force and the police surrounded the bourse to thwart violence by investors demanding a halt in trade.

To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Adria Cimino in Paris at acimino1@bloomberg.net.