U.S. Stock-Index Futures, European Shares Rise; Citigroup Gains

By Adam Haigh

Dec. 2 (Bloomberg) -- U.S. stock-index futures and European shares gained on speculation central banks will increase efforts to rescue the economy.

Citigroup Inc. rallied 4 percent in Germany after Federal Reserve Chairman Ben S. Bernanke said he may use less conventional policies to revive the economy. Allianz AG gained 3.2 percent as European producer prices dropped the most in 22 years in October, giving the European Central Bank more room to cut interest rates. Tesco Plc rallied 8.8 percent after the largest U.K. supermarket company reported better-than-expected sales.

Futures on the Standard & Poor’s 500 Index added 1.9 percent to 831.30 at 1:04 p.m. in London, indicating the gauge will rebound from the worst selloff since October. Economies from the U.S. to the U.K. and Germany have slipped into recession as credit losses approach $1 trillion in the worst financial crisis since the Great Depression.

“We will see further rate cuts from central banks as policy is going to have to be loosened,” said Graham Neale, managing director of Killik & Co. which has about $2.96 billion in assets under management. “We are not turning bullish on equities but there is certainly a case for adding to your exposure.”

Europe’s Dow Jones Stoxx 600 Index advanced 0.6 percent, reversing an earlier decline of as much as 2.3 percent. The MSCI Asia Pacific Index decreased 4.2 percent, with China Petroleum & Chemical Corp. dropping 6.2 percent.

Bonds Rally

U.S. Treasuries rallied, sending yields to near record lows, as the cost of protecting corporate bonds from default soared to an all-time high. European government bonds advanced for a third day.

The biggest drop in European producer prices since 1986 signaled inflation will slow further. Factory prices in Europe fell 0.8 percent from September, the European Union statistics office said today. The decline was due to a slump in oil prices and reduced the annual producer-price inflation rate to 6.3 percent from 7.9 percent.

Economists predict ECB policy makers will cut rates by a half percentage point this week. The Bank of England will probably lower rates by a 1 percentage point, according to a Bloomberg survey. Both central banks are scheduled to announce their decisions on Dec. 4.

Former Bank of England policy maker Willem Buiter said the U.K. central bank will weigh the risk of “a rout” in the pound when it cuts the benchmark interest rate this week, forecasting a 150 basis-point reduction.

Citigroup

Citigroup advanced 4 percent to $6.71 in German trading.

The Fed is scheduled to announce its decision on borrowing costs Dec. 16. Futures traders see a 64 percent chance the central bank will cut the benchmark rate by 50 basis points to 0.5 percent. There’s also a 6.5 percent probability rates will be reduced to zero percent next month, according to Fed fund futures.

Bernanke yesterday said he has “obviously limited” room to lower rates further and may use less conventional policies. Even so, reducing borrowing costs is “certainly feasible,” he said.

In western Europe, national benchmark indexes increased in 12 of the 18 markets. The FTSE 100 added 0.8 percent. Germany’s DAX gained 1.8 percent, and France’s CAC 40 rose 0.7 percent.

Allianz, Europe’s largest insurer, climbed 3.2 percent to 62.77 euros. Daimler AG, the world’s biggest truckmaker, added 2 percent to 23.30 euros. Nokia, the largest maker of mobile phones, gained 1.3 percent to 10.70 euros.

The U.S. government’s rescue of Citigroup and China’s efforts to bolster the economy with lower rates spurred a rally in equities worldwide last week, sending the MSCI World Index up 12 percent, its biggest weekly increase on record.

State-Aid

The European Commission and the ECB are working on state- aid guidelines in a move that would pave the way for approval of France’s 10.5 billion-euro ($13 billion) bank-rescue plan, two officials familiar with the matter said.

Tesco rose 9.5 percent to 315.4 pence. The company reported a 2 percent gain in same-store sales excluding gas, beating analyst estimates of a 1.6 percent climb. Tesco also said it plans to reduce capital expenditure next year to below 4 billion pounds ($5.95 billion).

William Morrison Supermarkets Plc added 2.1 percent to 242.75 pence.

More than $31 trillion has been wiped off the value of global equities this year.

The U.S. economy entered a recession last December, the panel at the National Bureau of Economic Research that dates American business cycles said yesterday. Europe’s economy fell into its first recession in 15 years in the third quarter.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net