• Home
• /
• Business

Stocks climb, US dollar falls on Citi relief

US equity futures rose 1.2 percent and financial bookmakers said major European stocks were expected to open up to 1.3 percent higher after the Wall Street Journal said Citi was in talks that could wind up saddling the government with a big stake in the financial group.

Even after the company’s stock price plunged 44 percent last week, it remained unclear if the government would provide fresh cash to the bank.

The market implications that a big government stake in a major international bank would have for equity dilution, cross-border capital flows and risk taking in general were far from clear.

‘It is reasonable enough to expect markets to remain volatile and my suspicion is the rise in risk appetite that we are seeing now could peter out in the US session as it will not be taken very positively,’ said Stephen Roberts, an economist with Nomura Securities in Sydney.

Still, the three havens that investors mainly bought last week on uncertainty about the fate of US banks-US Treasuries, gold and the dollar-all dropped, as dealers sold first and worried later about the consequences.

The MSCI index of Asia-Pacific stocks outside Japan rebounded after hitting a 3-month low and was up 1.4 percent on the day. The materials sector was the only one in the red, while the technology sector led the region’s gains.

Japan’s Nikkei share average finished down 0.5 percent, after cutting earlier losses. The broader Topix posted a fresh 25-year low though it fought back after the Citi news broke.

A gloomy mood remained in Japan though after SFCG, a high-interest lender to smaller firms, went bankrupt, as tight credit choked small and medium-sized businesses.

Hong Kong’s Hang Seng index rose 2.3 percent, though shares of HSBC were up only 0.8 percent, lagging the rest of the market ahead of the largest European lender’s results on March 2.

South Korea’s benchmark KOSPI roared 3.1 percent higher on the day after earlier trading at a two-month low, as investors rushed to cover their bets against Korean stocks.

However, sentiment has turned rather negative on Korea as a place of investment because of its vulnerability to demand from the developed world. A Thomson Reuters poll of 32 fund managers that oversee about $1 trillion in equities showed Korea was viewed by more than a third of respondents as having the least investment appeal in Asia.

CLARITY, PLEASE

In addition to further details on any potential changes in Citi’s capital structure, investors wanted more clarity on the US government’s plan to fix the banking industry. CNBC on Friday, citing unnamed sources at the Treasury Department, said the White House planned to release this week some details on a plan that was initially panned by global markets.

There is a growing view among investors that countless fiscal stimulus packages around the world will inevitably support the global economy but confidence in the banking system must be the foundation of a recovery.

While the Wall Street Journal report produced more questions than answers, dealers wasted no time in cutting their bets on the US dollar and gold.

Sharada Selvanathan, currency strategist with BNP Paribas in Hong Kong, doubted the rising trend in the dollar on the back of safe haven flows was over.

‘Remember that when a bank gets nationalised, it will be forced to handle business in a more domestically oriented manner; this would mean that the nationalised bank would have to pare back its business offshore. Repatriation flows would prove to be dollar positive,’ she said.

The euro rose around 1 percent to $1.2925 while the dollar slid 0.5 percent to 92.95 yen

Gold in the spot market fell 1.1 percent to $985.90 an ounce after rising to the highest since March 2008 on Friday, $1,005.40. The precious metal has risen 12 percent so far this year, bolstered by a lingering aversion to risk.

The benchmark yield on the 10-year US Treasury note ticked up to 2.81 percent from 2.79 percent late on Friday in New York.