U.S. Stock Futures Gain on Bank Plan, Comments by Fed's Fisher

By Eric Martin and Jeff Kearns

Oct. 13 (Bloomberg) -- U.S. equity futures gained after the worst week for stocks in 75 years, boosted by the government's plan to buy stakes in banks and a Federal Reserve official's pledge to ``consider every option'' for restoring confidence.

The statement by Dallas Fed president Richard W. Fisher came as European leaders agreed to guarantee deposits and use government money to prevent lenders from collapsing. Concern frozen credit markets will spur a global recession sent the S&P 500 to the lowest level since the start of the Iraq War last week and has erased $25 trillion for world stock markets in 2008.

Standard & Poor's 500 Index futures expiring in December added 36.6 points, or 4.1 percent, to 927.6 as of 8:58 a.m. in Tokyo after the index slid 18 percent last week, its worst drop since 1933. The euro climbed the most in three weeks against the dollar and yen following the measures announced by European leaders in Paris. Crude increased.

``The measures that they've said they're going to take are important,'' said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``When we say stabilize the financial system, we're talking about money flowing, banks lending. That's what the market is waiting for.''

The Dow Jones Industrial Average posted its steepest decline since it expanded to 30 stocks in 1928 last week, dropping 1874.19 points to 8,451.19. Benchmark indexes from London to Tokyo to Sao Paulo lost more than 20 percent as investors shrugged off an unprecedented coordinated effort by central banks led by the Fed to lower borrowing costs.

Negative Growth

Fisher, warning the U.S. faces a period of negative growth, said the Fed will consider all policy options necessary to stabilize markets and limit damage to the economy. U.S. Treasury Secretary Henry Paulson said a day earlier that pumping government funds into banks is a priority.

``We can and we will restore order to the credit markets,'' Fisher said during a panel discussion sponsored by the Institute of International Finance in Washington. He didn't offer details on what options may be under consideration.

The Fed is facing increasing evidence that the U.S. is close to or already in a recession. Labor Department figures showed Oct. 3 that payrolls fell by 159,000 in September, the biggest drop in five years. The unemployment rate held at 6.1 percent, up from 5 percent as recently as April.

At a summit chaired by French President Nicolas Sarkozy, leaders of the 15 countries using the euro pledged to guarantee new bank debt issuance until the end of 2009; seek permission to shore up banks by buying preferred shares; and get commitments to recapitalize any ``systemically'' critical banks in distress.

`Concerted Effort'

Billionaire investor George Soros said the European agreement is a ``positive'' step that may help stabilize global financial markets.

``In the last 72 hours, I think the European governments got religion and realized that this is a serious problem,'' Soros said today in Washington. ``People are looking for some leadership and finally they are getting it,'' suggesting there's ``a good chance'' the worst investor panic is over.

The S&P 500's eight-day losing streak is its longest since 1996. This week's declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended the week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.

A gauge of banks and insurers in the S&P 500 fell 22 percent last week to the lowest since December 1996. Morgan Stanley plunged 60 percent to $9.68 as Moody's Investors Service said it may reduce the U.S. investment bank's credit rating on concern the financial crisis threatens earnings and investor confidence. Goldman Sachs Group Inc. dropped 31 percent to $88.80.


New Terms

Morgan Stanley is in talks with Mitsubishi UFJ Financial Group Inc. about altering terms of the Japanese bank's pending $9 billion infusion into the Wall Street firm, said a person familiar with the matter.

Mitsubishi, Japan's biggest lender, agreed on Sept. 29 to pay $6 billion for Morgan Stanley convertible preferred shares and $3 billion for common stock at $25.25 apiece. Now the companies are discussing eliminating the common stock portion and using preferred stock instead, said the person, who declined to be named because the talks are private and the terms may change.

Exxon tumbled 20 percent to $62.36 last week and led energy producers to a 25 percent drop, the steepest decline among 10 industries in the S&P 500. Oil fell 17 percent to $77.70 a barrel on speculation the financial crisis will reduce demand.

Commodities Tumble

The Reuters/Jefferies CRB Index of 19 commodities had the biggest drop since at least 1956 on Oct. 10. The CRB fell 20.64 to 289.89, the lowest since Jan. 18, 2007. The index has slumped 39 percent from a record on July 3 and declined 20 percent in the past two weeks.

Copper futures for December delivery fell 26.15 cents, or 11 percent, to settle at $2.1445 a pound on the Comex division of the New York Mercantile Exchange. Copper dropped 20 percent last week, the most since 1988, when data begins.

Credit and recession concerns overshadowed unprecedented coordinated interest-rate cuts by the world's largest banks. The Federal Reserve reduced its benchmark interest rate by 0.5 percentage point to 1.5 percent. The European Central Bank lowered its key lending rate by half a point to 3.75 percent.

The benchmark index for U.S. stock options surged 55 percent to 69.95 and closed at a record each day. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the S&P 500. It averaged 59.43 this week, almost triple the 22.39 average in its 18-year history.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.