World stocks rally, oil threatens $120

LONDON - Increasing confidence that the worst of the credit crisis is over lifted world stocks on Monday while inflation concerns grew with oil prices heading to $120 a barrel.

By (Reuters)

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Published: Mon 28 Apr 2008, 5:13 PM

Last updated: Sun 5 Apr 2015, 11:45 AM

Investors have also stopped taking it for granted the U.S. Federal Reserve will cut interest rates later in the week, although most still expect such a move.

Oil leapt more than $1 to a record high of $119.53 a barrel after workers pushed ahead with a two-day strike that shut a major pipeline supplying about half of Britain's oil. There was also fresh violence on oil-producer Nigeria.

Crude later fell back from its high to trade at around $118.80.

"Supply-side concerns underpinned the oil price," David Moore, a commodity strategist at the Commonwealth Bank of Australia, said in a note to clients.

Stock markets generally looked past the issue, continuing their recent rally.

MSCI's main world stock index was up at mid-January levels having gained nearly 4 percent this month.

The pan-European FTSEurofirst 300 gained 0.5 percent on the day and Japan's Nikkei average hit a two-month closing high of 13,894.37, up 30.90 points or 0.2 percent.

Japan's broader TOPIX index gained 1.6 percent or 21.84 points to 1,361.75.

"What initially seemed like a much-needed 'spring reprieve' has turned into a full-fledged equity/spread rally, albeit one based on many unsettling contradictions," Lehman Brothers said on a note.

"April unfolded as the converse of the first quarter with some asset classes with vigour not seen since the beginning of the last credit cycle."

Easing crisis

Investors have become increasingly persuaded that the credit crisis is easing and is not likely to cause lasting damage.

UBS, for example, upgraded the global banking sector to "neutral", saying that with more than $191 billion of capital raised, bank capitalisation was well under way.

Banks were among the biggest gainers on European bourses, helped by renewed optimism for the sector after American Express posted forecast-beating results on Friday.

The recovery in sentiment, however, has been raising some thoughts that the Fed may not cut rates on Wednesday after chopping 3 percentage points off to 2.25 percent since mid-September in an effort to pump money into the financial system and restore investor confidence.

Futures markets are still suggesting an 80 percent chance of another 25 basis point cut, but now give a 20 percent chance of no change.

On foreign exchange markets, the euro was higher against the dollar, with larger gains cut back after consumer price data from four German states showed prices fell in April, suggesting easing price pressures in the euro zone's biggest economy.

The single currency was trading around $1.5657, up 0.2 percent. The dollar was flat at 104.44 yen having hit a two-month high earlier in the day.

Short-term euro zone government bonds gained on the German data. The two-year Schatz yield was down 4 basis points at 3.824 percent.

The 10-year bond yield gained 1 basis points to 4.192 percent.

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