Global Stocks Climb on Bank Investment; Citigroup, Goldman Gain

By Adria Cimino

Oct. 14 (Bloomberg) -- Stocks climbed worldwide, with the Standard & Poor's 500 Index extending yesterday's biggest gain in seven decades, as the U.S. plans to inject $250 billion in banks and urged the lenders to use the funds to spur economic growth.

Citigroup Inc., Goldman Sachs Group Inc. and Deutsche Bank AG rallied more than 14 percent. Societe Generale SA rose 9.1 percent after posting profit, saying it doesn't need more capital. The yen fell against the euro as support for banks encouraged investors to buy higher-yielding assets funded in the Japanese currency. Money-market rates declined in Europe and Asia.

``The market is saluting the bailout plan,'' said Chicuong Dang, an analyst at KBL Richelieu Gestion in Paris, which has about $5.5 billion under management. ``The efforts are moving in the right direction to avoid systemic risk, restore confidence and open the credit markets.''

The S&P 500 added 3.3 percent to 1,036.38 at 9:32 a.m. in New York, following yesterday's 11.6 percent gain. The MSCI World Index added 5 percent, bringing its two-day advance to 15 percent, the most since records began in 1970.

The U.S. investment in banks came after France, Germany, Spain, the Netherlands and Austria pledged 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders.

Europe's Dow Jones Stoxx 600 Index climbed 5.2 percent. The MSCI Asia Pacific Index surged 9.2 percent today, the most since 1998, with Japan's Nikkei 225 Stock Average jumping 14 percent, the most in its 59-year history, as trading resumed following yesterday's public holiday.

Citigroup, Goldman

Citigroup gained 16 percent to $18.32, and Goldman Sachs climbed 14 percent to $127.

With the equity purchases, Treasury Secretary Hank Paulson is using more than a third of the $700 billion in government support Congress gave him the authority to use on Oct. 3.

Paulson didn't identify the nine companies. People familiar with the plan said nine companies will get about $125 billion: Citigroup, Goldman Sachs, Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., the people said.

``We must restore confidence in our financial system,'' Paulson said in a statement in Washington. ``The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it.''

Deutsche Bank, Germany's biggest bank, rallied 17 percent to 40.78 euros. Barclays Plc, the U.K.'s second-largest bank, gained 18 percent to 254 pence.

Money-Market Rates Fall

Money-market rates fell in London with the cost of borrowing in dollars for one week dropping the most in almost a month.

The London interbank offered rate, or Libor, that banks charge each other for such loans slipped 50 basis points to 4.08 percent, the British Bankers' Association said. It was at a record of 4.76 percent on Oct. 9. The overnight dollar rate lost 29 basis points to 2.18 percent, down from 3.94 percent a week ago. The three-month rate fell 12 basis points to 4.64 percent. The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 15 basis points to 339 basis points.

Rates fell across Asia after Japan and Australia pumped $15 billion into the financial system.

``We are now seeing solvency being dealt with, we are seeing huge amounts of liquidity being thrown at the market,'' Simon Ballard, a senior portfolio manager at Fortis Investments, said in a Bloomberg Television interview. ``Banks will little by little start to face one another in the interbank market.''

The yen fell to 139.53 per euro from 138.57 late yesterday. Against the dollar, the yen was at 102.16 from 102.01. U.S. Treasuries declined the most in two weeks.

Volatility Falls

The VStoxx Index, which measures the cost of using options as insurance against declines in the Euro Stoxx 50, dropped as much as 12 percent today to 59.14, the lowest in three days. The index almost doubled last week.

National benchmarks advanced in all 18 western European markets except Belgium and Iceland. The U.K.'s FTSE 100 climbed 6 percent as BHP Billiton Ltd. and Cadbury Plc gained. France's CAC 40 jumped 5.8 percent as Total SA advanced. Germany's DAX rallied 5.5 percent. Fortis sank 67 percent, dragging Belgium's BEL20 Index down 0.4 percent.

Iceland's benchmark stock index plunged 77 percent in the first day of trading after a three-day suspension following the collapse of the country's banking industry.

Clawing Back Losses

The Stoxx 600 advanced 9.9 percent yesterday, clawing back more than a third of last week's 22 percent slump. The index has dropped 35 percent in 2008 as concern that frozen credit markets will trigger a recession erased about $28 trillion in value from global stock markets.

Financial firms have reported $636 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.

Fortis, the financial-services firm bailed out by three governments and BNP Paribas SA, plunged 67 percent to 1.77 euros as the shares resumed trading. Fortis said it will receive 14.4 billion euros from the sale of its Dutch and Belgian insurance and banking businesses.

``Uncertainty remains about what Fortis insurance international ultimately is worth and about what value will eventually come out of the structured-products portfolio,'' said Albert Ploegh, an Amsterdam-based analyst at ING Groep NV, who rates Fortis a ``hold.''

Concern the credit crisis will tip Europe into a recession helped push German investor confidence to near a record low. The ZEW Center for European Economic Research said its index of investor and analyst expectations slumped to minus 63 this month.

Earnings Outlook

Earnings in the U.S. are forecast to drop as the economic slowdown cuts demand. Analysts predict operating profit at S&P 500 companies fell 7.5 percent last quarter from a year earlier, according to data compiled by Bloomberg.

The S&P 500, the benchmark for American equities, ended last week valued at 17.2 times earnings of companies in the index, the cheapest in more than a year. Yesterday's rally pushed its price-to-earnings ratio to 19.2.

The MSCI World Index traded at 11 times the earnings of its 1,730 companies on Oct. 10, the lowest on record, and closed yesterday at 12 times profit. Europe's Stoxx 600 was valued at 8.5 times earnings last week, also the lowest on record, and climbed to 9.4 times profit yesterday.

SocGen

Societe Generale surged 9.1 percent to 53.45 euros. France's second-largest bank by market value said it will report ``positive'' net income for the third quarter. Leaving aside one- time items, profit stood at about 1 billion euros, the bank said.

BHP Billiton, the world's biggest mining company, added 10 percent to 1,147 pence, while Rio Tinto Group, the world's second- largest iron ore producer, jumped 9.6 percent to 3,066 pence.

Energy shares gained the most among the 18 industry groups in the Stoxx 600.

Total, Europe's biggest oil refiner, climbed 11 percent to 40.61 euros. BP Plc, the region's second-largest oil company, jumped 10 percent to 460.25 pence. Royal Dutch Shell Plc, the largest, added 11 percent to 1,570 pence.

Copper for delivery in three months on the London Metal Exchange rose as much as 9.6 percent to $5,605 a ton, bringing gains in the past two days to 13 percent, the most since at least 1986. Oil added as much as 4.5 percent to $84.83 a barrel.

Cadbury climbed 7.8 percent to 537.5 pence. The world's largest confectioner said revenue increased in the third quarter by 6 percent, excluding acquisitions and disposals.

Accor SA increased 11 percent to 35 euros. Europe's biggest hotel owner was raised to ``overweight'' from ``equal-weight'' at Morgan Stanley, which said the current share price offers a ``compelling entry point.''

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