U.S. Stock-Index Futures Climb on Bank Plan, Fisher Comments

By Jeff Kearns and Adam Haigh

Oct. 13 (Bloomberg) -- U.S. index 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.

Morgan Stanley soared 27 percent and Merrill Lynch & Co. climbed 9.5 percent in Germany. The statement by Dallas Fed president Richard W. Fisher came as European leaders agreed to guarantee bank borrowing and use government money to prevent lenders from collapsing. Concern that frozen credit markets will spur a global recession sent the Standard & Poor's 500 Index last week to the lowest level since the start of the Iraq War and has erased about $28 trillion for world stock markets in 2008.

S&P 500 futures expiring in December added 53.3, or 6 percent, to 944.3 as of 8:53 a.m. in London. Dow Jones Industrial Average futures rose 407, or 4.9 percent, to 8,777 and Nasdaq-100 Index futures advanced 61.75, or 4.8 percent, to 1,344.25. European and Asian stocks also rallied today.

``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 S&P 500 slid 18 percent last week, the worst drop since 1933. The Dow average posted its steepest decline since it expanded to 30 stocks in 1928 last week, losing 1,874.19, or 18 percent, to 8,451.19. Benchmark indexes from London to Tokyo to Sao Paulo sank more than 20 percent as investors shrugged off an unprecedented coordinated effort by central banks led by the Fed to lower borrowing costs.

Banks Rebound

Fisher said yesterday the U.S. faces a period of negative growth and pledged that the Fed will consider all policy options necessary to stabilize markets and limit damage to the economy. U.S. Treasury Secretary Henry Paulson indicated 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.

`Concerted Effort'

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.

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 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 the longest since 1996. Last 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 last week's trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.

Banks and Insurers

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.

Morgan Stanley climbed $2.60 to $12.28 in Germany today. The bank 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.

Merrill Lynch, the investment bank being bought by Bank of America Corp., added $1.49 to $17.24.

Crude Oil

Exxon Mobil Corp. gained 11 percent to $64.57 in Germany, following a 20 percent tumble last week. Crude oil climbed as much as 5.1 percent to $81.62 a barrel in New York, rising from a 13-month low.

Credit and recession concerns overshadowed unprecedented coordinated interest-rate cuts by the world's largest banks last week. 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: Jeff Kearns in New York at jkearns3@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.